NeoGenomics Enters Into Hospital Testing Deal With Premier

In a bold move intended to expand its hospital business, the Florida- based molecular laboratory NeoGenomics has entered into a three-year agreement with Premier, the health care sector's predominant group purchasing organization (GPO).

The agreement covers all of NeoGenomic's oncology testing services, including its next-generation NeoTYPE cancer profiles. The services will be made available to some 3,600 hospitals that participate in the Premier network—about 80 percent of all of the acute care facilities in the U.S. The NeoTYPE product can assess tumor profiles and gene drivers for 17 different types of solid tumor cancers, including brain, gastric, lung, pancreatic, and head and neck cancers. It can also profile eight different hematologic cancers, including lymphoma and myeloma.

A GPO typically acts as a purchaser of supplies and medical equipment for hospitals. It does not usually work closely with many laboratories.

"There are not a lot of GPO deals with labs," acknowledged Steve Jones, executive vice president of finance for NeoGenomics. "There are a lot of regulatory hurdles, and structuring this took a lot of time and attention."

Peter Francis, president of Clinical Laboratory Sales Training in Maryland, noted that GPO agreements are fairly common for reference laboratories, and they do confer some notable advantages. "It gives the laboratory significant leverage when selling their services to any member," he said.

The deal will position NeoGenomics as an in-network laboratory provider for Premier, a first for a lab specializing in oncology. It represents a big opportunity for NeoGenomics to get in front of the large bulk of the hospitals in the U.S. without having to rely heavily on its sales force. Jones noted that nearly half of its revenue is currently derived from hospital sales, compared to slightly more than a quarter from commercial payer contracts. Francis described the deal as "groundbreaking" because so few of the GPO/lab contracts focus on specialty services. "Frankly, it's somewhat refreshing to see a GPO amplify its in-network vendor list to include a niche reference laboratory," he said, adding that "NeoGenomics did a masterful job of selling their innovative and trademarked NeoTYPE cancer profiles to Premier."

According to Jones, NeoGenomics will bill the hospitals directly for services rendered and will actually contract with them directly in order to comply with federal regulations. Premier will receive 3 percent of the agreed-to payment under a specially structured safe harbor provision. No hospital that contracts with Premier will be required to purchase service from NeoGenomics, he added.

NeoGenomics has not provided any estimates on test volume or sales that could be derived from the deal, although Jones did expect it would boost the company's numbers in the long-term. "It is helpful to get a good housekeeping seal of approval like this," he said. Shareholders were heartened by the deal, which was announced in early September. Shares in NeoGenomics traded up about 10 percent the day the deal was announced, reaching about $6.50 per share, and they have remained there since.

Takeaway: NeoGenomics is using a twist on group purchasing practices to expand its business dealings with hospitals.