LabCorp lowers 2018 diagnostics arm growth guidance

Dive Brief:

LabCorp announced Wednesday it posted a profit of $233.8 million in the second quarter, an increase from $184.8 million in net earnings a year ago. The company’s diagnostics arm, which saw a decrease in adjusted operating income from 21.8% of revenue in the quarter last year to 20.7% in the second quarter 2018, attributed the decline to a negative impact from new payment rates under the Protecting Access to Medicare Act (PAMA).
The company, which recently disclosed it detected ransomware on its IT network, said that its investigation of the incident has not found evidence of theft or misuse of customer or patient data. CEO David King said the incident impacted operations for one week, but operations have “now returned to normal.” He added that the financial impact is not expected to be large, noting that the company has cybersecurity insurance on a call with investors.
Company executives added that while they saw a decline in hepatitis C genotype testing, overall volume for hepatitis C and vitamin D tests rose for the quarter despite revenue challenges. Rival Quest Diagnostics attributed slow growth in Q2 in part to payer limits on prescription drug monitoring and vitamin D testing.

Dive Insight:

LabCorp, which shares U.S. lab testing market dominance with Quest, narrowed its guidance for 2018, lowered its revenue growth guidance for LabCorp Diagnostics to a range of 3.0% to 4.5% over its 2017 $6.86 billion in revenue from its previous range of 3.5% to 5.5%.

The company attributed the lower guidance to its divestiture of Covance Food Solutions to Eurofins and the negative impact from the implementation of PAMA.

The industry's trade group, the American Clinical Laboratory Association, is challenging the new CMS reimbursement schedule that has cut payments for clinical lab testing.

King noted that the company's drug development business helped drive organic revenue growth, adding the differentiated business sections help its "ability to overcome segment-specific challenges." He added that the diagnostics arm expanded business with "key partners," helping to achieve "solid results despite the negative impact from the implementation of PAMA."