UnitedHealth Beans Quest Diagnostics
Updated from Oct. 3
UnitedHealth (UNH) sure knows how to play hardball.
Just ask Quest Diagnostics (DGX), the largest provider of clinical lab services in the country. This week, Quest lost out on a national contract with UnitedHealth -- a company that accounts for 7% of its revenue -- because, it said, "the terms and conditions that were offered by UnitedHealth would have been irresponsible for us to accept."
Competing LabCorp (LH) felt differently and scooped up the 10-year, $3 billion contract for itself.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." At this point, UnitedHealth seems compelled to step all over any party that tries to stand in its away. Recently, for example, UnitedHealth refused to pay higher rates to some HCA (HCA) hospitals even though those facilities have become "out-of-network" -- pushing UnitedHealth policyholders elsewhere -- as a result. Meanwhile, the company has slashed its payments to giant institutional pharmacy operator Omnicare (OCR) as well.
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