Dive Brief:

• Lab test giant Quest Diagnostics reported Q2 revenue rose 3% to $1.92 billion, slightly below expectations. Quest attributed the slower growth in part to a decline in genotype testing for hepatitis C, due to rapid acceptance of a new treatment for the disease that requires fewer tests. Payer limits on prescription drug monitoring and Vitamin D tests also dinged revenue growth, the company said.
• The company now must report uncollectible patient balances as a reduction of net revenues instead of as bad debt due to an accounting rule change.
• Quest is benefiting from a lower corporate tax rate that is offsetting cuts to Medicare reimbursement. Earnings excluding amortization of $1.75 per share were in line with expectations and represented growth of 20.5% from 2017.

Dive Insight:

Quest, which dominates the U.S. lab testing market along with rival LabCorp, said it supports the American Clinical Laboratory Association’s efforts to challenge the new CMS reimbursement schedule that has cut payments for clinical lab testing. ACLA is suing HHS for alleged failure to comply with congressional intent and unlawfully using flawed data in moving to a market-based payment system.

CEO Stephen Rusckowski said the company welcomes CMS’ recent proposal to change how it collects clinical laboratory fee data used to determine reimbursement payments for diagnostic tests by expanding the number of labs that would report their data to the agency. However, he said, the key will be what CMS does with input requested from industry participants.

“Changing data collection for future reporting periods does not undo the harm caused by the flawed data collection process that was used in connection with establishing the current rates,” Rusckowski told investors on the company’s earnings call.

Quest’s long-term goal is for acquisitions to add 1-2% a year to revenue growth. Quest recently completed the purchase of MedXM, a provider of home-based health risk assessments, following a busy 2017 in which the company announced seven acquisitions.

Rusckowski said the reimbursement cuts were forcing consolidation in the lab testing market, which has a number of smaller players, and Quest is speaking to more hospital CEOs as a result about possible deals or partnerships for lab testing. "There are more conversations today than a year ago," he said.

Quest also recently announced a long-term contract with UnitedHealthcare to operate as a preferred national laboratory for the company's members starting Jan 1. The pact will provide in-network access to Quest Diagnostics' laboratory services.

Quest adjusted its full-year outlook to reflect its first-half performance, lowering the top end of its revenue forecast range. It now expects 2018 revenue of $7.7 billion to $7.74 billion, compared to $7.7 billion to $7.77 billion previously. It narrowed its forecast for adjusted earnings to a range of $6.53 to $6.67 per share, from $6.50 to $6.70.