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Quest Diagnostics' Q3 Revenues Rise 1 Percent

NEW YORK (GenomeWeb) – Quest Diagnostics today reported that its third quarter revenues were up 1 percent year over year.

Quest's revenues for the three months ended Sept. 30 were $1.88 billion compared to $1.90 billion for the third quarter in 2014. The top-line figure fell just below Wall Street's average estimate of $1.89 billion.

Revenues from the firm's diagnostics solutions business — including risk assessment testing, clinical trials testing, healthcare IT, and other products businesses — decreased by 17 percent on a reported basis from the year-ago period, Quest CFO Mark Guinan told analysts and investors during a conference call today. Excluding clinical trials testing revenue from the third quarter of 2014, revenues in this segment grew 18 percent on an equivalent basis year over year.

Revenues from diagnostic information services were flat compared to the prior year, while test volume (measured by the number of requisitions) decreased 0.2 percent during the same period. The company's revenue per requisition grew by 0.2 percent compared to the third quarter of 2014.

Quest's net earnings for the third quarter were $342 million, or $2.35 a share, compared to $129 million, or $.88 a share, in the third quarter of 2014. Earnings per share on an adjusted basis were $1.28, above analysts' consensus estimate of $1.26 a share.

Quest's selling, general, and administrative expenses in the third quarter were $402 million compared to $446 million in Q3 2014.

One area that Quest is watching closely is how the Centers for Medicare & Medicaid Services is proposing to implement the "Protecting Access to Medicare Act of 2014," which seeks to establish a market-based payment system for diagnostics under the Clinical Laboratory Fee Schedule. Under this recently passed law, "applicable laboratories" will report private payor rates to CMS for each clinical lab test and their volumes over a specified period of time. Using this information, CMS will calculate a weighted median payment amount for each test.

Since CMS released its initial PAMA implementation plan, industry players have been most critical of the payors' definition of "applicable laboratory" as labs that receive more than 50 percent of revenues from Medicare and labs that have Medicare revenues of more than $50,000. This would rule out hospital labs from having to report fees.

"We're working this. We want to make sure we get this right," Quest CEO Steve Rusckowski said during the call, noting that with PAMA, Congress intended to take a market-based approach to "refresh" the clinical lab fee schedule. "To exclude 50 percent of those providing Medicare laboratory testing is a glaring flaw in the definition of the … market," Rusckowski said. "So, we're going to be all over this."

PAMA is still slated to take effect on Jan. 1, 2017, and labs will have to begin collating payment rates from private payors from July 1, 2015, to December 31, 2015, and report this to CMS during the first three months of next year. CMS will publish the final rates that take effect in 2017 in November 2016. Rusckowski believes that rule for implementing PAMA will take some time to get right with industry input.

Quest ended the quarter with $123 million in cash and cash equivalents.

Quest also tightened its 2015 revenue guidance to around $7.49 billion, compared to the previous guidance of between $7.49 billion and $7.57 billion. Guinan said he expects earnings to grow at a slower clip during the fourth quarter compared to the rest of the year due to a higher tax rate. The company expects adjusted earnings per share of between $4.75 and $4.80 compared to previous guidance of $4.70 to $4.85.

In Thursday morning trade on the New York Stock Exchange, shares of Quest were down around 3 percent at $62.91.