Labs and Diagnostics News – LabCorp and Quest

By: Michael White

On Friday, May 25th UnitedHealth and Aetna announced that beginning on January 1, 2019 both LabCorp and Quest will become in-network labs for both of the insurers.  LabCorp will continue its role as United’s exclusive national laboratory provider through the end of 2018 and Quest will do the same for Aetna.  Beginning January 1, 2019 there will no longer be exclusive agreements for either of the laboratory services providers.

The announcements likely allow LabCorp and Quest to leverage their advantages in scale to compete more effectively with regional independent labs and hospitals. Quest management reiterated several times on the conference call that the opportunity for share gains lies with the lab industry beyond the two national labs.  Quest and LabCorp currently account for ~25% of testing by dollar and ~45% by volume.  Both LabCorp and Quest have traded up ~4 and ~5%, respectively on the news adding ~$1 billion in market cap to each of the two stocks.

Laboratory-based diagnostic testing is an integral part of patient-centered healthcare.  From the insurers perspective, the deals will allow them to begin shifting the focus of lab testing away from the volume driven fee-for-service system.  Through value-based programs, lab services will be focused on quality and patient outcomes, enhancing the patient experience and controlling costs for the insurers.  While lab services only account for ~3% of overall healthcare spending and ~1.4% of Medicare spending, ~70% of healthcare spending is dependent on lab results.

Please reach out to our team if you would like to discuss the implications of the announcements in further detail.


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