This story has been updated with a statement from Labcorp Chairman and CEO Adam Schechter clarifying his remarks about the company's position on LDT regulation.
NEW YORK – During an investor call following release of Laboratory Corporation of America's Q3 2023 earnings, firm Chairman and CEO Adam Schechter said that lab test price cuts scheduled to take effect next year under the Protecting Access to Medicare Care Act (PAMA) would have a negative impact of roughly $80 million on the company's revenues.
"We've built in almost $80 million of downside into our base case assuming that PAMA comes next year," Schechter said, noting that implementation of the PAMA price cuts represents the largest potential impact to the company's margins in 2024.
Schechter said Labcorp is working through lab industry trade group the American Clinical Laboratory Association (ACLA) to push for passage of the Saving Access to Laboratory Services Act (SALSA) but noted that it would likely be difficult to get the bill through Congress before the end of the year.
In this he echoed the pessimism of his Quest Diagnostic's counterpart Jim Davis who, during that company's Q3 earnings call earlier this week, said that "the current standstill in Congress" makes SALSA "more difficult to get through this year."
Since then, the House of Representative has elected Mike Johnson, R-La., as speaker, ending the leadership crisis that has slowed congressional business for much of October. What his election will mean for SALSA's chances remains unclear, though the upcoming Nov. 17 deadline for passing a new government funding package could provide some insight into how Congress is likely to proceed.
Schechter said Labcorp is also exploring the possibility of another one-year delay of PAMA implementation if SALSA does not pass.
Schechter also addressed the US Food and Drug Administration's recent proposed rule on the regulation of laboratory-developed tests (LDTs). Unlike many in the lab industry, including ACLA, Schechter sounded a note of openness to FDA regulation of LDTs, suggesting that it might ultimately prove a competitive advantage for Labcorp.
He voiced concerns about whether the FDA's medical device regulatory framework is appropriate for LDTs, noting that "what we are worried [about] is if you take legislation that had an intended purpose for one thing, and then you try to apply it to another thing, you have to be very thoughtful about that."
However, he added that, "at the end of the day, if it is fairly done, meaning that all laboratory-developed tests have to do the same thing across small labs, big labs, and everything else, and as long as [FDA] can get these filings done quickly so that people can have access to new innovations like they do today, we believe that it would be minimal impact to us in terms of the amount of money or spend."
Noting that Labcorp believes it already does much of the work the FDA regulation would require, Schechter said that "we think that our science, our innovation, our technology capabilities actually differentiate us, and if you look at the rigor we go through with our laboratory-developed tests, we think we do the vast majority of what [FDA] would be asking for anyway."
He said Labcorp had supported congressional attempts to give the FDA oversight of LDTs through the Verifying Accurate Leading-edge IVCT Development (VALID) Act, saying that it was "disappointing that that legislation didn't go through."
"We're supportive of working with the FDA to find ways for them to give appropriate oversight," he said.
Schechter said that LDTs account for less than 10 percent of Labcorp's testing business by revenue and less than 5 percent by volume.
In a statement provided to 360Dx on Friday, Schechter clarified his remarks from the call, saying that "Labcorp aligns with ACLA and is open to legislation through the VALID Act. We are not supportive of taking the current FDA medical device authority designed for device protocols and applying it to the testing industry."
For the third quarter, the company reported a 7 percent year-over-year rise in revenues.
Total revenues for the three months ended Sept. 30 were $3.06 billion, up from $2.87 billion in the third quarter of 2022, and above the consensus Wall Street estimate of $2.99 billion.
The company's financial results reflect the divestiture of its Covance drug development unit in the middle of the year. Including Covance's contribution to Q3 2022, Labcorp Q3 2023 revenues were down 15 percent from $3.61 billion in the year-ago period.
In diagnostics, revenues were up 6 percent to $2.34 billion compared to $2.21 billion in Q3 2022. Organic revenues were up 3 percent, with a decline in SARS-CoV-2 testing contributing an 8 percent headwind while growth in the company's base testing business boosted revenues by 12 percent, the Burlington, North Carolina-based firm said. Total base testing was up 16 percent year over year, with the Ascension lab management agreement contributing roughly 6 percent of base business growth.
Total requisition volume increased by 2 percent as organic volume declined by 1 percent with volume from acquisitions contributing 3 percent in growth. A drop in SARS-CoV-2 testing volumes accounted for a 5 percent decline in volumes while a rise in base testing upped requisition volumes by 3 percent.
The company's biopharma lab services unit saw revenues rise 8 percent year over year to $719.1 million from $666.4 million.
During Q3 2023, net earnings attributable to Labcorp were $183.6 million, or $2.11 per share, compared to $277.3 million, or $3.06 per share, in the same quarter last year. Including Covance's contribution, net earnings were $352.8 million, or $3.90 per share, in Q3 2022.
Adjusted EPS for the quarter was $3.38 and beat analysts' average estimate of $3.32.
The company's SG&A costs were $525.5 million, up 16 percent from $453.2 million in the same quarter last year.
Labcorp narrowed its full-year 2023 guidance to revenue growth of 1.9 percent to 2.7 percent from a previous projection of 1.5 percent to 3.0 percent. It projected adjusted EPS of $13.25 to $13.75 compared to its previous guidance of $13.00 to $14.00. The guidance assumes growth of between 11.5 percent and 12.2 percent in the company's base testing business and a decline of between 85 percent and 86 percent in its COVID-19 testing business.
The company ended the quarter with $727.9 million in cash and cash equivalents.
In Thursday morning trading on the New York Stock Exchange, Labcorp shares were up 4 percent to $205.46.