A steep drop in routine lab test orders—the trickle-down effect of COVID-19 related doctor visit cancellations—is prompting Quest Diagnostics to furlough thousands of employees and cut pay and hours for others.
Quest CEO Steve Rusckowski wrote in a letter to employees that even though the company has ramped up COVID-19 testing, it hasn't been nearly enough to offset the "significant reductions" to overall testing volumes, which shrunk more than 40% in the last two weeks of March. The Secaucus, New Jersey-based lab company is furloughing 4,000 people whose workloads have been diminished by the COVID-19 pandemic, about 9% of its total workforce. Rusckowski's letter said the furloughs cover people who "have indicated an interest to be at home."
Denny Moynihan, a Quest spokesman, declined to say whether the furloughs are voluntary.
"These are the temporary actions we need to take now to help us through the second quarter," Rusckowski said. "After that time, we will evaluate what we need to do beyond that, if anything."
The company said it will continue to provide benefits and cover employee contributions for furloughed employees.
Usually, Quest performs more than 500,000 lab tests per day. The company is now performing about 45,000 COVID-19 tests per day in addition to a lower number of routine tests related to wellness screenings, pre-employment drug screenings and surgeries, Moynihan said.
"Look, we're humming," he said. "We're doing 45,000 tests per day. Our backlog is less than 2 days on average. And the steps that we did take, they're temporary and they're not going to impact our ability to do testing. We're managing through the long run."
But some analysts think lab companies like Quest and LabCorp could see long-term effects.
Eric Coldwell, an equity analyst with Baird, said Quest and LabCorp's lab test volumes typically don't fluctuate beyond 5% in a given year. With a 40% decline in volume at the end of March, that drop could be as high as 50% by mid-year, he said.
"This is going to be some of the worst volumes in the history of the industry by possibly 10 to 15 times worse than any quarter we've seen," Coldwell said. "It's really bad."
The investment bank Jefferies announced Tuesday it has lowered its 2020 and 2021 outlooks for both Quest and LabCorp. Jefferies cut its 2020 revenue estimate for Quest by 15% and for LabCorp by 13%.
"While COVID testing has ramped up, volumes associated with the pandemic pale in comparison to the business lost from the steep decline in physician office visits and their associated lab referrals," analysts with Jefferies wrote.
While both companies cut costs, they still have high fixed costs, like logistics infrastructure, that limits their ability to flex expenses, Jefferies said. To that end, the bank said it is lowering its earnings before interest, taxes, depreciation and amortization estimate by 48% for Quest and 45% for LabCorp.
LabCorp did not return a request for comment Tuesday.
Rusckowski's own pay will be reduced by 25% for the next 12 weeks, and each of the company's directors will forgo 25% of their cash compensation over the same period, according to the letter. Salaried employees will take temporary pay cuts for 12 weeks ranging from 20% for top executives down to 5%.Quest is also cutting hours for hourly employees where possible, reducing overtime, freezing virtually all hiring and promotions and dismissing temporary and contract workers.
Quest is also suspending the company match for 401(k) and supplemental deferred compensation plans through the end of the year.
Rusckowski wrote that none of the changes will affect the company's ability to deliver COVID-19 tests. To date, he said the company has performed nearly 800,000 tests, or about 40% of all testing by commercial labs. He said the company is now preparing to offer antibody blood testing to identify people who have been exposed and built immunity.
Quest recently acknowledged a backlog of COVID-19 tests due to a sharp influx of orders that outpaced its capacity. On Monday, the company announced it had eliminated its test backlog, which had been at 80,000 as of April 6. Moynihan said it takes time to get the labs up to capacity.
"We started with one lab and then we moved to 12," he said. "So you greatly increase your capacity and your ability to turn around quicker."
