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Quest Q2 Revenues Grow 2 Percent as Industry Pushes for Delay In PAMA Implementation

NEW YORK (GenomeWeb) – Quest Diagnostics today reported 2 percent year-over-year growth in its second quarter revenues, while its diagnostic information services revenues increased 3 percent.

For the three months ended June 30, overall revenues rose to $1.94 billion from $1.91 billion, matching the average analysts' estimate. Diagnostic information services grew to $1.86 billion from $1.81 billion from Q2 2016.

During the quarter, Quest acquired several lab businesses including the outreach laboratory services of Dignity Health Sierra Nevada Memorial Hospital and two clinical labs based in Texas. On a conference call following the release of the company's financial results, Quest President and CEO Steve Rusckowski said that the firm is "working hard" at continuing to build up its share of the clinical laboratory market.

"Our march continues," he said. "We should over time take up more share, both organically and through acquisitions."

Quest's recent uptick in M&A activity is against a backdrop of the impending implementation of the Protecting Access to Medicare Act of 2014, or PAMA, on Jan. 1, 2018. On the call, though, Rusckowski said that PAMA implementation may be pushed back to July 1, 2018, or later, as Quest and others in the industry push for a delay by the Centers for Medicare & Medicaid Services.

Several board members of the American Clinical Laboratory Association this month met with Senate and House members "reiterating our belief that the current regulation effectively excludes hospital outreach labs, which are a significant segment of the laboratory marketplace," he said. He added that last month, ACLA sent a letter to CMS recommending postponing the calculation and publication of a new PAMA-driven clinical lab fee schedule redefining an applicable lab to include hospital outreach labs.

The definition of what constitutes an applicable lab has been a sore point for Quest, as well as Laboratory Corporation of America and other labs, because absent data from hospital outreach labs, they believe any new reimbursement levels set by PAMA will not reflect true market rates that PAMA will base its rates on.

ACLA, Rusckowski said, is recommending to CMS the publication of a new clinical lab fee schedule no earlier than July 1, 2018.

"While we support reform of the Medicare payment system, we believe any modification should be market-based and appropriately include all applicable independent and hospital outreach laboratories," Rusckowski said.

During the quarter, Quest also continued its push into the consumer lab testing space and announced a deal with Walmart. While the initial deal covers laboratory services, over time it is expected to include other basic healthcare services to help deliver on Quest's growth strategy to support population health with data analytics and extended care services.

Other healthcare services that the deal is anticipated to encompass, Rusckowski said, include hypertension management, diabetes management, and ensuring patients take their medications. It also includes working with health insurers to close gaps in healthcare. 

For the second quarter 2017, Quest posted a profit of $193 million, or $1.37 per share, compared to $195 million, or $1.37 per share, a year ago. On an adjusted basis, EPS for Q2 2017 was $1.55, up from $1.34 a year ago, and beating the consensus Wall Street estimate of $1.42.

The company finished the quarter with $314 million in cash and cash equivalents.

Quest increased its outlook for full-year 2017 with revenues now expected in the range of $7.69 billion to $7.74 billion. Prior guidance was a range of $7.64 billion to $7.72 billion.

EPS range is now expected to be between $4.90 and $5.00, up from a prior range of $4.73 to $4.88. Anticipated adjusted EPS was raised to between $5.62 and $5.72 from an earlier range of $5.45 to $5.60.