Quest Diagnostics Inc., the top U.S. provider of diagnostic testing services, said Tuesday it has lost its contract with UnitedHealthcare, which accounts for about 7 percent of Quest revenues.
Why did Quest Diagnostics lose this valuable contract from its largest customer?
The mind reels.
Of course, the financial press is playing this as a straight business news story. Shares of Quest are taking a beating. The UnitedHealth business represents 7% of Quest's profits.
At this moment, I have on my desk a bill from Quest. Quest is a pretty familiar name within the Medical-Industrial establishment. I'm wondering why did UnitedHealth pull the plug?
It appears that Quest refused to cave to outrageous demands from UnitedHealth, that might have meant compromising the quality and safety of laboratory testing.
Does this article from The Street help you figure out what's going on here? Did Quest take the high road, and refuse to participate in business practices which would compromise further our ragged healthcare system?
In the United States, healthcare is only about delivering earnings to Wall Street. It's about cutting costs, and cutting corners, and increasing profits--it not about delivering affordable healthcare as a basic right to all the citizens of this country.
For Quest, which was favored by experts to land the huge deal, the news brought immediate pain. The company's shares plummeted 11% to $54.02. In comparison, LabCorp looked like a big winner with its stock up 3.5% to $67.50.
Meanwhile, UnitedHealth itself was up fractionally as the company went about doing its business of driving hard bargains and impressing Wall Street.
"UnitedHealth promised in their last investor day that they were going to get $300 million worth of medical cost savings over time," notes Sheryl Skolnick, senior vice president of CRT Capital group. "That comes from hospitals, physicians, labs -- you name it. This is just one step in that direction."
I don't know yet what UnitedHealth was demanding of Quest. But in the days ahead, I'm sure we'll find out.
In the meantime, add William McGuire the CEO of UnitedHealth to the other crooks and liars of our era. Cheats and criminals like Mark Foley, Dennis Hastert, George Bush and Dick Cheney. Mr. McGuire, CEO of UnitedHealth Group Inc. has accumulated stock options worth an estimated $1.6 billion.
Earlier this year, McGuire cashed out options worth $124 million, and in 2004 he was the highest-paid executive in Minnesota, with total compensation of almost $125 million.
Company officials have defended those paydays by pointing to McGuire's success in transforming United from a financially ailing insurer into the second-largest in the country. The company also is a Wall Street darling; its stock price has climbed more than 200 percent in the past five years.
My advice, be careful, no one is protecting you. During these bleak times, remain vigilant and ask questions. Healthcare in America is about winners, losers, and profits.
Also bear in mind, all that counts in the insurance industry is the medical loss ratio which has been plunging for the last ten years. The medical-cost ratio - also called the medical-loss ratio or medical-care ratio - is the key number for health plans in terms of their level of profitability. That ratio, simply, is the percentage of dollars the companies spend on health care. High is good for us, low is good for them--and it's been plunging.
Medical-loss ratios for 2005 (Source: Company 10-K, year-end filings with the Securities and Exchange Commission):
76.9% - Aetna
82.3% - Cigna
83.9% - Health Net
83.2% - Humana
78.6% - UnitedHealth Group
80.6% - WellPoint
The reaction from Wall Street is not the real news. The frightening news is the response from the president of Quest.
The news slammed Quest shares, which plunged more than 12 percent.
. . .Quest, which reported $5.5 billion in revenues last year, said it could not yet estimate the financial impact of losing the national provider contract with United, its largest customer and one of the country's largest health insurers.
What did UnitedHealth require of Quest? The demands were apparently so onerous that Quest gave up its contract with its number one source of business.
``In our response to UnitedHealthcare's request for proposals, we offered to substantially reduce its laboratory costs, while at the same time increasing access and convenience for its members and physicians,'' said Quest Chief Executive Officer Surya N. Mohapatra, in the statement. ``The terms and conditions that were offered by UnitedHealthcare would have been irresponsible for us to accept.''
Surya N. Moahpatra, Quest's chairman and chief executive officer, told analysts during a conference call that "it would have been fiscally irresponsible" to sign a new contract with United, given its "unreasonable demands" and "unilateral provisions."
"If we had signed that contract, it would have been irresponsible not only for us as a company but for the whole industry," Mohapatra said.
"We believe patients, physicians and employers will continue to insist they have access to quality and convenient laboratory services from Quest Diagnostics, because of our enhanced patient experience, medical quality and the broadest distribution network," continued Dr. Mohapatra. "We want them to know they have a choice when it comes to selecting a laboratory. Choosing a diagnostic lab with a focus on patients and quality makes a difference for your health."
There's something truly rotten going on here.