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Quest Q4 Revenues Dip 1 Percent

NEW YORK (360Dx) – Quest Diagnostics today reported a 1 percent year-over-year drop in revenues for the fourth quarter, missing the consensus analyst expectation.

Revenue for the three months ended Dec. 31, 2018 was $1.84 billion, down from $1.87 billion in the same quarter last year. The consensus Wall Street estimate was $1.88 billion.

Revenue per requisition in the fourth quarter declined by 5.5 percent driven by increased denials from insurers, uncollectible patient balances, and an adjustment made in the fourth quarter to increase accounts receivable reserves, according to Quest Executive Vice President and Chief Financial Officer Mark Guinan. The reserve increase was made due to "unexpected increases in coverage denials and patient responsibility" as well as a billing system conversion in a regional lab that resulted in "timely filing denials" and impacted the company's ability to estimate reimbursement rates.

Other headwinds that the company has mentioned in prior quarters – in the areas of vitamin D testing, hepatitis C testing, and in prescription drug monitoring – also continued in the fourth quarter, Guinan said. In prescription drug monitoring, the company has seen an increase in "restrictive payor policies" that impacted volumes and reimbursement. Also, hepatitis C therapies have reduced the need to genotype hepatitis C testing, and in vitamin D testing, higher payor denials have impacted volume and revenues, according to Guinan.

During the quarter, net income attributed to Quest was $127 million, or $.92 per share, down from $254 million or $1.82 per share, in the fourth quarter last year. Adjusted EPS was $1.36 and missed the analysts' average estimate of $1.37.

In the fourth quarter Quest spent $356 million on SG&A, down 7 percent from $382 million in the same quarter last year.

The company ended the quarter with $135 million in cash, cash equivalents, and restricted cash.

For the full year 2018, net revenues were $7.53 billion, up 2 percent from $7.40 billion in 2017, but short of the consensus estimate of $7.57 billion. Test volumes increased 3.4 percent for the year, and excluding acquisitions, volume grew 1.1 percent for the year, according to Guinan.

For the full year, lab testing price headwinds were slightly less than 1.5 percent, he said.

Net income for 2018 attributable to Quest was $736 million, or $5.29 per share, down 5 percent from $772 million, or $5.50 per share, in 2018. Adjusted EPS for the year was $6.31 and missed the consensus analyst estimate of $6.33.

For 2018, Quest spend $1.42 billion on SG&A, down 1 percent from $1.44 billion in 2017.

In November, Quest had lowered its full-year revenue guidance, due in part to revenue softness driven by weather-related events such as Hurricane Michael, the California wildfires and an East Coast snowstorm. For the full year 2019, the company is now providing revenue guidance of between $7.60 billion and $7.75 billion, an increase of approximately 1 to 3 percent versus 2018. Reported EPS is expected to be greater than $5.16 and adjusted EPS is expected to be greater than $6.40.

Quest expects to grow by 2 percent as a result of acquisitions in 2019, according to Quest Chairman, President, and CEO Steve Rusckowski. Late last year the company announced plans to acquire the clinical lab services assets of Boyce and Bynum Pathology Laboratories, which closed in the first quarter of 2019.

For 2019, Guinan said that the company faces $200 million of reimbursement pressure that is expected to be evenly distributed throughout the year, due in part to lowered Medicare prices for lab tests introduced through the Protecting Access to Medicare Act (PAMA).

Rusckowski called PAMA reimbursement pressures "the catalyst for structural change" in the industry. Quest expects PAMA will result in a 10 percent reduction in Medicare reimbursements in 2019 and a similar reduction in 2020, he noted.

"The impact of these cuts will be more significant on smaller hospital outreach laboratories, which we believe could eliminate the majority of their profits and will provide a catalyst for market consolidation," Rusckowski said.

He also noted that Quest has added access to 43 million insured patients through new relationships with UnitedHealthcare, Horizon Blue Cross Blue Shield of New Jersey, and Blue Cross Blue Shield of Georgia. Those relationships are expected to present a $1 billion opportunity, according to Rusckowski, but potential revenues from access to those patients is expected be distributed several years, he said.

In late morning trading shares of Quest were trading at $85.43 down 5 percent from yesterday's close.