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Clinical Labs Recap Q2-2014: Slowly Improving Climate

|Includes:Quest Diagnostics Incorporated (DGX), LH

Quest Diagnostics joined the earnings party by recording better than expected revenues and earnings for the June 2014 quarter. Some of the highlights of the conference call follow:

  • Reimbursement trends and outlook is improved. Several examples referenced including Tricare announcing restoration of payment for 40 molecular codes previously denied.
  • ACA enrollment ramped up late in Q1 resulting in a modest shift in uninsured patient volumes in Q2.
  • Improvement in organic volume and price trends seen.
  • Partnership established with Sloan-Kettering for molecular NextGen sequencing of solid tumor cancer patients.
  • Partnership with Sequenom for national access to MaterniT21 PLUS NIPT.
  • Cost savings should exceed long term goal of $1 billion.

Laboratory Corp of America also beat on both top and bottom line for June 2014 though year over year comps remain soft. Highlights from conference call:

  • Cost savings through streamlined operations and consolidation is progressing.
  • Robust growth seen in companion diagnostic assays to guide targeted drug therapy. Example provided was HCV GenoSure.
  • Problems getting paid for tests continues to hurt bottom line.
  • Tricare three-year program to pay for some molecular testing that had stopped in 2013 should help, including extended coverage for prenatal and preconception, cystic fibrosis and carrier screening.
  • Recovered some money that went unpaid last year and are getting paid by some payers that were not paying last year. However, not seeing material overall improvement yet.
  • Run rate of uncollected MoPath payments from last year of $52 million has not materially improved.
  • Tricare is a material portion this $52 million and the single largest test was cystic fibrosis. Tricare has stated they will go back to January 2013, but company is still waiting to see impact of this decision.
  • ACA is providing a volume benefit. Seeing a very rapid growth in the Medicaid population which is shift to mix. Medicaid is very restrictive for molecular and high value testing which is putting pressure on price.
Stocks: DGX, LH