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Quest Diagnostics Addresses Acquisitions, Reimbursements, Testing Landscape at JP Morgan


SAN FRANCISCO – In a wide-ranging presentation at the 41st Annual JP Morgan Healthcare Conference, Quest Diagnostics' new President and CEO Jim Davis addressed multiple segments of the business, including Quest's hospital and physician laboratory market, advanced diagnostics, and the growing consumer-initiated testing (CIT) efforts. 

During his talk on Wednesday, Davis also noted that Quest estimates $9.8 billion in revenues for 2022. 

The firm has been active in hospital laboratory acquisitions and will continue to be opportunistic about M&A going forward, Davis said. Given the financial pressures many hospitals and health systems face, outreach lab businesses may not be a priority for their executives, providing Quest an opportunity to step in. There are also small regional laboratories choosing to sell their businesses, and Quest is looking to possibly capitalize on such opportunities — particularly in areas of the US where Quest has a smaller share of the lab market. It is looking at possible "capability-building" acquisitions as well, largely in the genetics and cancer, metabolic disease, and neurological disease spaces.

Its advanced diagnostics segment includes the genomics and cancer offerings that Quest intends to focus on. The company already has over $1 billion in cancer testing revenues today, with strong routine testing and anatomical pathology businesses, but it aims to build out its post-diagnosis capabilities in prognostics, therapy selection, and minimal residual disease testing, Davis said. 

For its CIT business, the company aims to reach revenues of $250 million by 2025. Overall, Quest estimates it to be a $2 billion market. 

In 2021, Quest posted $70 million in revenues for the segment, and the firm is rejiggering its pricing as the business grows, Davis said. Within the segment, he highlighted the potential for sexually transmitted disease testing, a market that is generally not price-sensitive, and added that the company is going to experiment with placing point-of-care molecular diagnostic devices in its service centers, saying that Quest believes patients will pay a premium to get faster results.

Investments in both the advanced diagnostics and CIT segments will largely be flat, Davis said. The nature of investments in CIT will change, Quest CFO Sam Samad said, as in 2022 the company focused on revamping the website for test ordering. This year, Quest will make more investments in marketing to promote the site and may make more investments in growth initiatives. 

Quest is also reinvigorating its savings program — which twas put on the back burner during the COVID-19 pandemic when any available resources were focused on pandemic response — to offset the impact of pricing increases and wage inflation, Davis added. Samad noted that the company is confident in its previous forecast of 4 to 5 percent long-term revenue growth and ability to achieve that growth rate in 2023, although it is still facing a challenging inflationary environment and productivity is still not at pre-pandemic levels. 

Quest said the positive impact of delays in payment rate cuts related to the Protecting Access to Medicare Act will have an upside of $80 million to $85 million, although Davis cautioned that not all of that will go straight to Quest's bottom line, particularly in light of a challenging inflationary environment. The Centers for Medicare and Medicaid Services also recently increased reimbursement for blood draw fees to more than $8, which will add another $35 million to $40 million of incremental revenue. 

There remains significant uncertainty around COVID-19 demand and pricing — currently, COVID-19 PCR tests are priced at $100 by Medicare, but when the public health emergency ends Medicare prices will drop to $51. Although Quest is optimistic the PHE will be extended, once it ends it remains unclear at what level commercial payors will reimburse, Davis said. He also said he's not sure all COVID-19 tests will be covered by commercial payors going forward. 

CFO Samad said the company is assuming it will conduct about 10,000 to 15,000 COVID-19 tests per day in 2023 but that the volumes could be lower. In addition, the heightened respiratory season in the US and Northern Hemisphere overall is having a positive impact on the company's product mix as physicians order molecular COVID-19, influenza, and respiratory syncytial virus tests when patients have flu-like symptoms, Davis said. 

Expanding on changes in testing dynamics, Davis said that there has been concern about excess molecular testing capacity and market share loss as some healthcare providers invested in instruments during the COVID-19 pandemic to perform testing in house rather than sending it to a reference laboratory, but "having the presence of equipment does not guarantee commercial success." One area of concern is STD testing, but to compete in that market, companies need relationships with doctors, electronic connectivity to those doctors, and to be in-network with insurers, and Davis said he doesn't think commercial laboratories will be in-network just because they have equipment placements.