Tuesday, December 12, 2006

Lab Corporation of America vs. Quest Diagnostics Perspectives of Lab Soft News and Snake Oil Sam

Once again Bruce Friedman at Lab Soft News has done a stellar job in attempting to present both sides of the issue of Lab Corporation of America and Quest Diagnostics related to the United Healthcare issue and areas of interest and concern.

Herein I offer an excerpt of some of his and his colleague’s valuable thoughts and insights which are in all likelihood far less one sided than my own tend to be on this particular issue. I present his words in a highlight of yellow and below that offer some of my own thoughts on the subject.

Addendum on 12/11/2006 @ 3:48 p.m.

I have had additional discussions with colleagues about this issue of "transition costs" paid by LabCorp to UnitedHealth. Their understanding is that the transition costs incurred by LabCorp (up to $200M and mainly in the first year) are to encourage LabCorp to (1) build out their lab and patient service center capacity quickly in order to manage the rapidly increasing test load (i.e., rapidly increase infrastructure) and (2) ensure that lab tests ordered for UnitedHealth patients are routed to LabCorp and not, out of office/physician habit, to Quest or some other lab. "Capture" and "leakage" are the two sides of the same coin. UnitedHealth wants the tests performed at their low negotiated price in LabCorp labs and not performed by other labs at higher prices. If the tests are routed to other labs, the patients may also be required to pay an out-of-pocket premium. However, Quest will be anxious to retain the previous UnitedHealth business and may lower their prices to retain the business, if possible. Stay tuned.
(End Excerpt)

My thoughts on the above comments are as follows:

Why would it be necessary for Lab Corporation of America to pay any amount of money to United Healthcare in order for Lab Corporation of America to “build out” their business? That would be like me paying my business partner a guaranteed amount of money so that I might be able to expand the size of my house.

And if there is an amount to be paid to United Healthcare why would that amount be a variable amount “(up to $200M)” as Mr. Friedman states above. The reason is that the amount is directly connected to the amount of business which manages for one reason or another to “leak” to Quest Diagnostics, Bio Reference and any other worthy competitor. The amount of $200,000,000.00 is simply a guarantee to United Healthcare to protect that company from lost revenue caused by dreaded leakage and nothing more.

As far as it relates to the issue of the patient having to pay an out-of-pocket premium by permitting the medical professional to re-direct the specimen out of network the issue is a complicated one which is subject to not only federal rules and regulations but those legislated by state governments as well. In other words it is something which must be dealt with on a state by state level. What is true in the experience of one patient will not necessarily be true in the experience of another.

As far as the matter of Quest Diagnostics lowering their price in order to retain the current level of business, which they have every plan on attempting to do as much as possible within the parameters of law, that matter is a somewhat sticky issue.

Unlike a business which sells candy and can do just about anything that it wishes to do in order to set pricing and retain business, the laboratory business is highly regulated at all levels and it might not be possible for Quest Diagnostics to simply lower pricing. But you can be assured that they are taking all possibilities under consideration. The issue of medical specimen testing related to United Healthcare remains highly fluid (no pun intended) at this moment and I suspect it shall remain as such.

In addition to that, anyone considering this subject will soon learn by studying the philosophy of Quest Diagnostics that that company will not simply try to be the least expensive player on the block in order to win business.

Quest Diagnostics works with a carefully planned and pre-conceived business strategy which demands that any business taken on by that company must produce results based on a closely guarded formula in order to achieve the desired result.

If Quest Diagnostics had simply wanted to be the provider of choice for United Healthcare then the Executive at Quest Diagnostics would have simply bent to the contractual demands of United Healthcare. That didn’t happen though did it? The reason that it didn’t is directly related to the Philosophy of Quest Diagnostics. A philosophy which has made them the company they have grown to be.

One of the things that play a part in that formula that is not a closely guarded secret is the concept that Quest Diagnostics demands integrity at every level of service to the client and the patient. That is something which you can not place a price on. It is that portion of the equation known as “priceless.

And that it why so many people choose Quest Diagnostics
as the laboratory which they want to utilize for their medical testing services.

And while speaking to the issue of “integrity” one of the important issues related to leakage which Friedman might want to do a little investigating into is the issue of whether or not United Healthcare is acting in less than a professional manner in order to prevent medical professionals from re-directing medical specimens for lab testing to any other lab, especially Quest Diagnostics.

The reason I bring this issue to the attention of Mr. Friedman is that I have heard talk of such a possibility due to what has become very bad blood between these two large and powerful companies.

As Mark Friedman states above in conclusion to his comments “stay tuned.”

Snake Oil Sam
Snake Oil Sam Internet Media Publishing © 2006

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