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Quest reports 3% drop in revenue in 2013


By Jaimy Lee
Posted: January 30, 2014 - 2:15 pm ET
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Quest Diagnostics' revenue fell about 3% in 2013 as the company continues to deal with lower utilization and declining reimbursement of laboratory and diagnostic services.

Revenue from continuing operations was $7.1 billion in 2013, compared with about $7.4 billion in 2012. Net income, however, increased to $849 million from $556 million in 2012.

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Like other providers of diagnostic services and clinical lab tests, Quest has been challenged by decreases in utilization as patients continue to put off doctors visits and lab tests because of the weak economy or changes in their employer health plans, which may mean more out-of-pocket costs for the patient.

“It is clear to us that healthcare utilization declined broadly in 2013,” Steve Rusckowski, Quest's president and CEO, said during a call with analysts. “It is conceivable that this trend could continue through 2014 based on the acceleration of employer-to-employee cost shifting and benefit plan design.”

Reimbursement is another concern. Quest expects reimbursement to decline 1% to 2% every year from 2013 to 2015. Rusckowski said the company expects revenue to be flat or down 2% in 2014.

But Quest also predicts that a number of future trends will positively affect the company. Increased adoption of tests for hepatitis C, which is now recommended for all adults born between the years of 1945 and 1964, and its new offering of testing for the BRCA genes associated with higher risks of hereditary breast and ovarian cancer are expected to drive growth.

And, as more consumers gain health coverage through the Patient Protection and Affordable Care Act, that will likely lead to increases in utilization. In addition, some of the patients who have put off doctor's visits and lab tests in recent years may move forward with care.

“There's a fair amount of pent-up demand that should show itself back into system,” Rusckowski said. “(But) we're not expecting this in 2014.”

Quest said it expects growth from new partnerships with different sorts of health systems, including community hospitals, hospital chains and academic medical centers, that are choosing to outsource their laboratory services, form joint ventures with outreach labs or make other arrangements. The company launched its professional lab services business in November 2012.

“Many CEOs in these integrated delivery systems are asking us for our help in thinking through their lab strategy,” he added.

The company, which acquired two outreach labs from Dignity Health and UMass Memorial Medical Center in 2013, has reached professional lab outsourcing agreements with three undisclosed hospital systems, according to a Quest spokeswoman.

“Throughout 2013, we saw growing interest from hospitals who are trying to manage their cost structures better, deliver a high-quality solution and are concerned about bundled payment models,” she said.

Just last week, Quest announced plans to acquire Solstas Lab Partners Group for $570 million. Solstas, a Greensboro, N.C.-based commercial laboratory, is owed by private equity firm Welsh, Carson, Anderson and Stowe and operates in nine states. The acquisition will allow Quest to offer its professional lab services business to Solstas' hospital clients.

Follow Jaimy Lee on Twitter: @MHjlee


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