(Bloomberg) -- Theranos Inc., the health startup that performs many routine tests with only a fingerprick’s worth of blood, plans to announce for the first time that it will become the preferred lab-work provider for a health insurer.
Capital BlueCross, a Pennsylvania insurer that covers 725,000 consumers, will promote the California company’s tests. Theranos also will open new blood-work locations, called “wellness centers,” on the East Coast for the first time, Chief Executive Officer Elizabeth Holmes said.
The expansion helps Theranos strengthen its challenge to traditional lab testing offered by companies such as Quest Diagnostics Inc. and Laboratory Corp. of America Holdings. The company says its fingerprick tests are as accurate as those done with blood drawn from a vein, and cost a fraction of its competitors’ offerings.
“We want to be the highest-quality, lowest-cost lab service, period,” Holmes said by telephone. Theranos has automated many of the processes in blood testing, resulting in reduced labor and other costs, she said.
Capital BlueCross customers will be able to take a Theranos test at two retail stores run by the insurer, in addition to any locations opened by the startup, according to Chief Executive Officer Gary St. Hilaire. The partnership isn’t exclusive, though St. Hilaire says the Theranos test “will be very much preferred for the cost.”
St. Hilaire wasn’t able to provide an estimate of cost savings to Capital BlueCross; he said the rates are “significantly less” than other lab testing services.
$10 Billion Valuation
Theranos’s venture-capital backers include DFJ, ATA Ventures and billionaire Larry Ellison’s Tako Ventures. The company is now valued at about $10 billion, Holmes said in a separate interview last week.
The U.S. Food and Drug Administration cleared the company’s fingerprick test for the herpes virus last week, giving Theranos ammunition against skeptics who question whether its technology is as accurate as traditional lab work.
While Theranos has coverage agreements with other insurers, the Capital BlueCross deal is its most ambitious yet, and it gives the company distribution agreements with every sector of the health system. The company already has a partnership with Walgreens Boots Alliance Inc., the biggest drugstore chain in the U.S.; contracts with health-care providers including the Cleveland Clinic and Intermountain Healthcare, a 22-hospital system in Utah and Idaho; and a pact for two wellness centers in physician practices in Arizona.
The lab-testing industry is ripe for a fresh challenger because the costs are high and unpredictable, while the services vary little from lab to lab, said Mitch Rothschild, the chairman of Vitals, which runs a website that lets consumers find lower prices for medical services. A basic panel of blood work can range from about $120 to $600, his company has found.
Today, most people pay little attention to the cost of their labs, in part because blood work is covered by insurance. But that’s changing. About 4 in 10 workers now face at least a $1,000 deductible on their health plans, according to the Kaiser Family Foundation, up from 1 in 10 in 2006. As individuals bear more of the costs of their medical care, they’ll be looking to spend less on services like labs.
“We’re in the middle of a consumer behavioral change,” Rothschild said. “It is clearly an inefficient market today.”
While Theranos can perform many routine tests with its finger-stick diagnostic system, it still uses traditional vein- drawn blood for some specialty tests that it hasn’t yet been able to miniaturize.
Holmes plans further expansion to reach populations that lack convenient access to lab testing, such as cancer care practices where patients need frequent blood draws. Theranos also seeks to make testing available on nights and weekends so customers don’t have to take time off work, she said.
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