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Quest Diagnostics Q1 Revenues Up 49 Percent

NEW YORK – Quest Diagnostics reported on Thursday that revenues for its first quarter were up 49 percent year over year.

For the three months ended March 31, total revenues rose to $2.72 billion from $1.82 billion and beat the consensus Wall Street estimate of $2.64 billion. Revenues from the company's Diagnostic Information Services was $2.64 billion, up 52 percent from $1.74 billion in Q1 2020.

Test volume as measured by requisitions was up 26 percent in the quarter, with organic volume up 22 percent and revenue per requisition up 21 percent.

On a conference call following the release of the Q1 results, Steve Rusckowski, chairman and CEO of Quest, said that the company's base testing business had nearly recovered to pre-pandemic levels with March marking the first month since the start of the pandemic to show base testing organic revenue growth versus the 2019 baseline.

In perhaps a sign of a return to more normal business patterns, the Protecting Access to Medicare Act was a focus of Rusckowski's remarks as he highlighted a recent briefing by the Medicare Payment Advisory Commission that explored alternative approaches to reporting lab pricing data under PAMA, including possibly via a survey of independent, hospital outpatient, and physician office laboratories.

Rusckowski noted that the report found that if a more representative set of labs had been used in collecting the original pricing data for PAMA, Medicare test reimbursement would have been 10 to 15 percent higher, and added that this finding supported the argument by many in the industry that the law as implemented had used a flawed data collection process.

He also cited the recent dismissal by a US District Court of the American Clinical Laboratory Association's challenge to PAMA. At the end of March, the US District Court for the District of Columbia dismissed a lawsuit filed in 2017 by ACLA against the US Department of Health and Human Services and former HHS Secretary Alex Azar. In its decision the court said the lawsuit was moot since HHS had changed its definition of an "applicable laboratory," which had been a crucial bone of contention in ACLA's lawsuit contesting the PAMA rates. In 2018, HHS included hospital outreach labs under the new definition, and the formula to calculate PAMA rates also included the private payer rates that hospital outreach labs received.

Because PAMA provides that “payment amounts under this section shall not be subject to any adjustment," the court said, "it could not order the agency to revise any payment amounts in the fee schedules used to determine 2018–20 payments or any particular payments to plaintiff’s members."

On Quest's call on Thursday, Rusckowski said, "We are working with ACLA to determine next steps with respect to this litigation."

Quest CFO Mark Guinan said on the call that demand for COVID-19 molecular testing declined more quickly during Q1 than the company had anticipated, but he noted that a rise in routine testing revenues had recovered to more than offset this decline.

He said Quest ended Q1 performing an average of 73,000 molecular COVID-19 tests and 8,000 serology tests per day.

Rusckowski said the company expected COVID-19 test volumes would continue to decline throughout the year. He added that Quest also expected that testing patterns would shift with an increasing portion of demand coming from what he called "return-to-life activities," referring to testing done by schools, businesses, and other organizations to enable a safe return to operations.

"That type of activity will be a larger portion of what we do for COVID testing in the back half" of 2021, he said. "And also we do believe that COVID-19 testing and PCR testing will continue in 2022. This is not going away fast."

Rusckowski also said that Quest plans to start a share repurchase of roughly $1.5 billion.

Quest updated its outlook for the first half of 2021, projecting net revenues of between $5.00 billion and $5.20 billion, which would be up year over year between 37 percent and 43 percent. Adjusted EPS is expected to be between $6.30 and $6.80. Previously the company projected net revenues of between $4.85 billion and $5.15 billion and adjusted EPS of between $5.90 and $6.90.

The Secaucus, New Jersey-based lab company posted a profit of $469 million, or $3.46 per share, compared to a profit of $99 million, or $.73 per share, a year ago. Adjusted EPS for the recently completed quarter was $3.76, above the consensus Wall Street estimate of $3.71 per share.

In Q1, Quest's SG&A spending rose 17 percent year over year to $407 million from $347 million.

Quest finished the quarter with $1.23 billion in cash and cash equivalents.

In early morning trading on the New York Stock Exchange, Quest shares were down less than 1 percent to $129.87.