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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 202  
Subject: Re: DGX Recommendation Reasons Date: 4/30/2007 8:20 PM
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To me this is not unlike the HBO/Showtime deal of 20 years ago. HBO had so much share that it was assumed that they were the only premium movie service that mattered. Therefore, a movie's value of cable was whatever HBO was willing to pay to show it.

But one movie company decided to break this grasp by signing an exclusive deal with Showtime/The Movie Channel. In doing so, they enhanced the value of Showtime with their business and made a viable competitor to HBO. Thereafter, there were two bidders for movies. And value of movies was enhanced.

DGX apparently thought they were the only service out there with a national network able to serve all of UNH's insured. UNH drove a hard bargain and when DGX would not come around, they used their business to base load a competitor. With a long term contract from UNH, Lab Corp could get funding at the bank to equip its expanded facilities.

And keep in mind, there are all sorts of obscure tests out there. DGX may run more of them than anyone else, but people are quite willing to send the obscure tests to an outside lab. But A few dozen tests are run all the time. They need facilities to draw blood, and run those most common tests promptly in every part of the country (or Fed Ex specimens to other labs if they lack local facilities).

But now that Lab Corp has their labs financed, equipped and in place, they are now very ready to negotiate with other insurance companies possible for more profitable business. But they now can keep DGX honest.

DGX seemed to think they were essential and could name their own numbers. But the insurance industry played games--as big customers often do--to bring in a competitor to get better pricing. They were successful. DGX lost.

But now, Lab Corp might get bought out by someone else and the game repeats itself. They might also lose the UNH contract next time if DGX decides to be aggressive.
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