Public Health Laboratories and Health System Change . PHL Contracts With MCOs and Private Laboratories


Nine PHL directors reported involvement in contractual arrangements: four specified contracts with MCOs, four specified contracts with private laboratories, and one specified contracting with a provider. In terms of the scope of these activities, five PHLs reported outsourcing testing services to commercial laboratories. Examples of these tests included adenovirus typing, liver enzyme typing, and other esoteric testing. In addition, four PHLs reported insourcing tests from commercial laboratories; one of these laboratories reported providing TB testing services for a private laboratory, while the other three did not specify the type of testing insourced.

The interviews and case studies lent further credence to the notion that, despite large reported numbers of interactions, public-private collaborations in the laboratory marketplace are limited in scope. The following examples describe contracts in which PHLs performed work on a contractual basis for MCOs and/or commercial laboratories:

Minnesota's PHL has had two contractual arrangements with MCOs and, recently, with private laboratories. However, both contracts have comprised a very small percentage of the laboratory's overall budget, and the contracts were not renewed. The PHL had a small contract with HealthPartners, an MCO in Minnesota, in 1995 to provide laboratory testing for pertussis. The contract was fee-for-service (i.e., billed per sample) and essentially covered the cost of materials used by the PHL. However, during the course of the contract, the PHL only received 250 samples to test, far fewer than originally projected. The second contract involved a company called Viromed, a private full-service microbiology laboratory, whereby the PHL was contracted to perform adenovirus typing tests. The state PHL is the only laboratory in Minnesota with the appropriate antiserum (provided to the laboratory by the CDC). In 1996, Viromed approached the state PHL regarding a purchase order arrangement whereby the PHL performed testing for 100-150 specimens at a per-culture cost for one calendar year, the contract was fulfilled at the end of 1996 and was not renewed for 1997.

In Tennessee, under the TennCare managed Medicaid program initiated in 1994, the state PHL was required to seek contracts with MCOs for testing that it provided to local health departments treating TennCare patients. In 1995, the state PHL sought contracts with all twelve TennCare MCOs, and obtained only three extremely limited contracts (revenues from these contracts comprise less than 5% of the overall PHL budget). In part, these contracts were precluded by the fact that one MCO operates its own laboratory, and two other MCOs have exclusive arrangements with private laboratories. The contracts with the MCOs are limited to the testing of specimens sent in from local health departments, and prices were negotiated based on what Medicaid had reimbursed prior to TennCare. As with all other user fees, revenues generated through these contracts were passed back to the state. The laboratory did not have a billing system to accommodate these tests, and subcontracted with the public health departments to provide this function. Thus, for every test, the laboratory paid the public health departments a $2.70 processing fee.

In California, with the advent of MEDI-CAL (California's managed Medicaid program), a private reference laboratory, UNILAB, has joined in a multi-faceted contracting arrangement with public providers of laboratory services in Alameda County. These contracts are designed to respond to MEDI-CAL cost-pressures. In order to go after MEDI-CAL contracts alone, each of the county providers and UNILAB would face redundancy and extension of areas of weakness within each organization. Thus, the strategy is to use joint contracting to develop full areas of laboratory services at sustainable rates. The arrangement specifies the following: a) public hospitals will do routine/emergency inpatient testing; b) the county PHL will provide its traditional services to county hospital and LHD clients, with expected volume increases from improved coordination; and c) UNILAB will perform more esoteric, complex, and less rapid turnover testing. UNILAB receives its testing volume through the county providers' established community presence, and in turn, UNILAB provides oversight and coordination for the system. However, despite reports from UNILAB that the contract has created initial Amutual gains@ for all parties, the county PHL reports that the arrangement has not produced the anticipated testing volume increases, and in some cases, testing volume has actually decreased.

New Jersey's PHL also performs some limited work for Roche Laboratories (now part of LCA). The contract includes performing viral isolations, tuberculosis reference work, and salmonella testing.

Several PHLs also have arrangements to outsource some of their laboratory testing to commercial laboratories. For example, in New Mexico, the state PHL outsources pap smear, chlamydia, and polymerase chain reaction (PCR) testing to private laboratories. In addition, Wyoming's PHL sends liver enzyme specimens for testing to Quest Diagnostic's testing center in Denver, CO. Finally, West Virginia's PHL reports utilizing private laboratories for overflow purposes. For example, West Virginia's PHL recently had staff turnover of cytotechnologists, and, subsequently, the PHL contracted with some private laboratories to process and conduct pap smear tests for a brief period of time until the cytotechnologists were replaced.

Several PHLs are in the process of obtaining contracts with MCOs. In Michigan, the state PHL recently entered into an agreement with the Michigan Department of Corrections to provide HIV viral load testing for their inmate patients, and, as a result, the parties are now discussing using the PHL as a laboratory testing subcontractor to the MCO that provides care to the inmate population. In addition, state PHLs in Arkansas, Florida, and Maine are looking at ways of bidding for MCO contract work for laboratory services in the near future.