BOTH OF THE NATION’S LARGEST clinical laboratory companies reported increased specimen volume as a result of the Accountable Care Act (ACA), as noted in their respective fourth quarter and full-year earnings reports.
First to issue its earning statement was Quest Diagnostics Incorporated. On January 29, it reported fourth quarter revenue of $1.9 billion, an increase of 7.2% over Q4 revenue of $1.8 billion in 2013.
Specimen volume increased 8.8% from Q4 in 2013, the company said. Acquisitions added 9% to specimen volume, which implies a decline of 0.2% in organic volume, compared to Q4 in 2013.
Revenue per requisition for Q4-2014 was down 1.5% compared with the same quarter in 2014. Quest officials noted that acquisitions accounted for a decline in revenue per requisition of 1.5%. This implies that organic revenue was flat, compared with Q4 in 2013.
For the full year, revenue at Quest Diagnostics was $7.4 billion, an increase of 4% compared with revenue of $7.1 billion in 2013.
Explaining the effect of the ACA on volume, Quest President and CEO Steve Rusckowski said, “We continued to see signs of a modest increase in utilization. We are encouraged by the progress on exchange enrollment as the result of the Affordable Care Act. During the fourth quarter, we continued to see stability in test volumes on what we call a sameprovider basis.”
During 2014, Quest experienced an increase in specimen volume in states that expanded their Medicaid programs. “That was probably the most notable source of lives that we saw entering the system,” Rusckowski added.
Laboratory Corporation of America issued its earnings report on February 20. The company noted that fourth quarter revenue was $1.51 billion, an increase of 5.3% over the $1.44 billion for the same quarter last year.
For the full year 2014, LabCorp’s revenue was $6.01 billion, an increase of 3.5% over 2013 revenue of $5.81 billion. For the year, total volume rose 5.3%. The LabCorp press release stated that “The growth in revenue was due to organic volume of 3.5%, partially offset by a decline in revenue per requisition of 1.4% and negative impact of currency of 0.4%. In addition, acquisitions added 1.8% to sales. Total volume, including acquisitions, increased 5.3%.”
Effects of ACA Enrollment
Increased volume from ACA enrollments in the exchanges and from Medicaid expansions in 28 states was greater than company officials predicted, noted LabCorp CEO David King during a conference call with financial analysts. In addition, core testing grew faster than esoteric testing, in part because patients went from being uninsured to having insurance after enrolling on the exchanges or because of enrollment in Medicaid in some states, he added. However, the ACA also had a negative effect on lab test prices.
Another public lab company with a significant presence in the United States is Sonic Healthcare, Ltd., of Sydney, Australia. On February 17, Sonic issued its earnings report for the first six months of its fiscal year. This covered the first two quarters ending on December 31, 2014.
Sonic Is Global Lab Company
Sonic Healthcare is truly a global laboratory company. Its lab testing business in the United States represents 21% of its overall revenue. By comparison, Sonic’s lab operations in Australia and Germany make up 29% and 20%, respectively.
For the first six months of its fiscal year 2015, Sonic reported revenue of $430 million from its lab operations in the United States. It stated that organic revenue growth was 1% in constant currency (5% statutory) and that it had experienced variable growth among its lab testing divisions within the United States.
Sonic also commented that it was seeing a strengthening of volume growth in the United States in recent months. One weak spot it identified was that CBL Path, its national pathology business, had experienced fee cuts and insourcing. This is consistent with the experience of anatomic pathology groups and national pathology labs throughout the United States during the past year.
Tough Lab Test Marketplace
Taken collectively, the full year earnings reports of LabCorp and Quest Diagnostics, along with the six-month earnings report of Sonic Healthcare, demonstrate that it was a tough market for lab testing services during 2014 for larger public lab companies. Administrators of clinical laboratories and pathology groups should incorporate the experience of these national lab companies into their strategic planning for the balance of 2015 and into 2016.
Bio-Reference, NeoGenomics Have Strong Revenue Growth
TWO OTHER PUBLIC LAB COMPANIES reported stong revenue growth in their respective quarterly earnings reports.
On March 5, BioReference Laboratories Inc. (BRLI) of Elmwood Park, New Jersey, reported revenue of $208.8 million for its first quarter ending January 31, 2015. This is an increase of 15% over the $181.3 million it reported in Q1 2014 and gives the steadilygrowing lab company an annual run rate of about $825 million.
BRLI’s revenue per patient for Q1FY15 was $88.09, an increase of 8% compared with the $81.17 for the same quarter in 2014. Its patient count (specimen volume) increased by 7%, compared with Q1FY14.
Bio-Reference said its revenue per patient was $88.09. That was an increase of 8% over Q1FY15, when revenue per patient was $81.17. Days sales outstanding for the quarter was 113 days and BRLI said that esoteric testing now makes up 70% of its test mix.
In Fort Myers, Florida, NeoGenomics, Inc., issued its earnings report on February 24. The company reported Q4 revenue of $25 million, a 36% increase over fourth quarter 2013 revenue, along with an increase in organic volume of 23%.
For the full year, NeoGenomic’s revenue rose to $87.1 million, a 31% increase from revenue in 2013. Its acquisition of the pathology company PathLogic last July accounted for $4.9 million of the total revenue. For the full year of 2014, organic test volume at NeoGenomics rose by 29%.
For much of the past decade, both BioReference Laboratories and NeoGenomics have demonstrated sustained growth in specimen volume and revenue, primarily through their respective introductions of unique lab test offerings, supported by in-house sales and marketing programs. Neither company has relied on lab acquisitions as a primary source of regular growth.