Dive Brief:

• Quest Diagnostics early Thursday reported third-quarter revenue of $2.79 billion, a 42.5% increase compared to the prior year, thanks to continued strong demand for COVID-19 testing and a recovery in its routine business. Quest's stock was up more than 3% in late morning trading.
• CEO Steve Rusckowski said during the investor call that Quest now has a "clearer line of sight" for both the company's base business and COVID-19 testing. As a result, the company is raising its full year 2020 outlook and will be returning $138 million in Coronavirus Aid, Relief, and Economic Security Act funds to the federal government. "We no longer require this funding," he said. 
• Rusckowski told investors there are "signs" of the healthcare system returning to pre-pandemic levels, noting that at the end of September Quest's organic routine business volumes were down mid-to-high single digits compared to last year, an improvement from July. However, CFO Mark Guinan said Quest continues to operate under "uncertainty" caused by COVID-19.  

Dive Insight:

Quest experienced the dual benefit during the third quarter of continued strong demand for its COVID-19 molecular diagnostics and antibody tests as U.S. infections spread, coupled with a "rapid recovery of healthcare utilization" boosting its routine testing business. 

Rusckowski said the company's base testing volumes were lifted in the quarter as health systems resumed non-urgent care and elective surgeries. Organic routine testing volumes saw a year-over-year decline in the high single digits in July but improved slightly to a mid-to-high single digit decrease in September, he told investors. Guinan added that for the entire third quarter, base testing volumes declined about 5% versus 2019.

"We're making progress in our strategy to accelerate growth in the base business," Rusckowski said, noting the company aims to grow more than 2% per year through tuck-in acquisitions and building relationships with health plans and healthcare providers.

Quest's growing confidence prompted the company to raise its full-year 2020 outlook. Revenue is now expected to reach between $8.8 billion and $9.1 billion, an increase of about 13.9% to 17.8% compared to the prior year. The previous outlook forecasted revenue of between $8.4 billion and $8.8 billion.

However, Guinan cautioned that Quest continues to operate "under the uncertainty" caused by the coronavirus pandemic. "Continued recovery in the base business as well as demand for and duration of COVID-19 molecular testing are significant swing factors that remain challenging to forecast," he said.

Guinan still predicted that demand for coronavirus-related tests is "likely to persist well into 2021" with molecular PCR testing continuing to be in high demand and "there will eventually be a growing need for serology testing as vaccines and additional therapies come to the market." 

Quest performed 9.9 million coronavirus molecular tests and 1.5 million serology tests during the third quarter. To date, Quest has conducted over 22 million COVID-19 molecular and antibody tests in total.

However, a new CMS reimbursement policy could impact future testing revenue from high-throughput coronavirus diagnostic tests. 

Quest is currently reviewing CMS' decision last week to cut the payment rate to laboratories that take more than two days to process high throughput COVID-19 diagnostic tests, according to Rusckowski. In April, the agency raised the payment rate for such testing from $51 to $100. However, starting in January, CMS will only pay $75 for tests with longer than two-day turnaround times for results.

"The devil's in the details. We need to understand exactly when the clock starts on turnaround times," Guinan said "That's why we're cautious."

While Quest is now averaging a two-day turnaround across all patient populations, for much of July the company's test results took seven days or longer. Chief rival LabCorp meanwhile reported four- to six-day wait times at the start of July, and trimmed it to two to three days by the end of the month. LabCorp's current COVID-19 molecular testing average time to result is one day.

LabCorp is scheduled to report third quarter results on Oct. 27.