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Once Again, Revenue Declines at Quest Diagnostics Incorporated

Fourth quarter and full-year 2013 earnings report provide evidence of weakening market for lab testing

FIRST TO REPORT its fourth quarter and full year earnings for 2013 was Quest Diagnostics Incorporated. It more than other potential buyers to released its earnings report last Thursday.

For fourth quarter 2013, Quest Diagnostics generated revenue of $1.76 billion, compared to $1.77 billion in Q4- 2012. This was a decline of 1% and in line with industry expectations.

Specimen volume was up 2.3% for fourth quarter, compared to same quarter in 2012. Revenue per requisition was 3% less than same quarter last year, of which 1% was attributed to a toxicology company acquisition and 2% due to ongoing reimbursement pressure.

For the full year, Quest Diagnostics reported revenue of $7.14 billion, compared to $7.38 billion in 2012. This was a decline of 3.2%. The company did not provide numbers on its full-year specimen volume or change in revenue per requisition.

Shrinking Annual Revenue

Anticipating 2014, executives at Quest Diagnostics told Wall Street analysts to expect the company’s revenue to end up between flat and negative 2%. This predicts a trend of disappointing growth consistent with a trend that goes back several years.

For example, the high-water mark for annual revenue at Quest Diagnostics was in 2009, when it generated $7.46 billion. Thus, over the past four years, it has not been able to reach or exceed the revenue total that it posted in 2009.

This is one reason why Quest Diagnostics was probably willing to bid more than other potential buyers to acquire Solstas Laboratory Partners of Greensboro, North Carolina. That deal was announced last month and may bring up to $350 million in annual revenue to the nation’s largest commercial lab company.

Hospital Lab Agreements

Meanwhile, executives at Quest Diagnostics are hopeful that they can expand their company’s presence in hospital laboratory management and operations. During the fourth quarter conference call, it was disclosed that the company had “reached agreement with three hospital systems on lab professional services arrangements.”

Neither the nature of the arrangements nor the identity of the hospitals was provided. That may be a sign that these deals involve smaller community hospitals, some of which may be in financial trouble. Most of the hospital lab outreach sales announced in the past 48 months have been by hospitals or health systems that were under financial pressure and wanted to raise capital by selling their lab outreach businesses.

Finally, on a useful note for other laboratories, Quest Diagnostics reported a modest increase in patient bad debt. It said that most of this was due to increased co-pays and deductibles required of patients, and not from uninsured patients.

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