Dive Brief:

• Analysts predict UnitedHealth’s upcoming formation of a preferred lab network will see LabCorp and Quest Diagnostics win market share from regional contenders.

• The insurance giant currently allocates around 10% of its $8 billion annual lab spend to LabCorp and Quest, according to Jefferies analysts, making the network a significant opportunity for the leading players to grow sales.

• Quest regained access to UnitedHealth’s network at the start of the year, giving it a chance to win market share from its national rival LabCorp. 

Dive Insight:

The next step in United’s rejig of its lab network is the creation of a group of preferred providers, which it plans to reveal at the start of April and establish the network in July. Speaking last month, Quest CFO Mark Guinan said he was “very confident” his company will be accepted into the network.

Guinan and his colleagues are reportedly preparing Quest to take advantage of the opportunities created by the network, such as the chance to collaborate with United on its hospital strategy and work with the insurer's administrative services only customers on benefit designs.

Analysts at Jefferies who recently discussed the preferred lab network with Guinan at an investor event said they emerged with the impression that United’s goal is to create a network of lower-cost providers and allocate an increasing proportion of its lab spend to them. Given LabCorp and Quest think their scale enables them to undercut regional providers, that goal could see the companies win business from smaller competitors.

Jefferies puts the amount United spends on services from Quest and LabCorp at $1 billion a year and its total lab spend at $8 billion. As such, while United’s decision to add Quest to its network created a headwind for LabCorp, the bigger opportunity for both companies lies in taking business from local labs. Jefferies expects the network to start driving share gains to Quest from 2020 onward.

Quest is looking to the United contract to help strengthen its business and thereby regain “investor credibility, especially as it relates to delivering stable and predictable earnings results,” according to the analysts, who interpreted the remarks as suggesting Quest’s guidance for 2019 is conservative.