UnitedHealth Extends LabCorp Ties, Signs Quest Diagnostic Deal

Health insurer UnitedHealth Group Inc. UNH has renewed its long-term strategic partnership with LabCorp, a leading global life sciences company providing comprehensive clinical laboratory and end-to-end drug development services.

Per the agreement, LabCorp will continue to serve as UnitedHealthcare’s exclusive national laboratory provider till Jan 1, 2019. However, effective this date, Quest Diagnostics will become an “in network” lab for more than 48 million enrollees covered under the UnitedHealthcare plans. UnitedHealth has entered into a long-term agreement with Quest Diagnostic for the same.

Via these agreements, UnitedHealth intends to bring the accountable care arrangements (ACOs) model of payments to the diagnostic companies. Both companies will together provide a variety of value-based programs, with the same aligned incentives and enhanced patient experience to lab services, like what we see in accountable care arrangements with UnitedHealthcare and more than 1,100 hospitals and 110,000 physicians.

This would result in payment based on final outcome and quality of care provided compared with fee for service, which emphasized volume of care rather than quality.

Under the fee-for-service model, unnecessary lab tests were prescribed by physicians which resulted in high reimbursement from insurance companies. A shift to value-based care is the need of the hour to make the healthcare system more efficient and reduce medical cost.

UnitedHealth expects that within 10 years, half of all Americans will be receiving health care from physicians operating in highly evolved and coordinated value-based care designs because the outcome clearly demonstrates improved quality and consumer satisfaction while reducing the cost of health care. The company is working toward this structural shift from fragmented fee for service.

Year to date the stock has gained 10.5% compared with the industry’s growth of 7.8%.

Value-based reimbursement of services has gradually gained ground, but now all the major players Aetna Inc. AET, Humana Inc. HUM, Cigna Corp. CI are moving full speed ahead.

UnitedHealth carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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