The conference call is being recorded and the contents are copyrighted by Quest Diagnostics. Shawn Bevec, Vice President of Investor Relations, introduces Jim Davis, Chairman, CEO, and President, and Sam Samad, CFO. Forward-looking statements and non-GAAP measures will be discussed. Actual results may differ from projections due to risks and uncertainties. References to reported and adjusted EPS, base business, testing, revenues, and volumes will be made. Jim Davis then begins his presentation.

The company experienced nearly 5% growth in their base business in the third quarter, with strong growth in their physician and hospital channels. They have successfully completed negotiations for all strategic health plan renewals and are on track to deliver productivity improvements through their Invigorate program. The company's strategy includes meeting the evolving needs of their core customers, acquisitions, and driving operational improvements. They have seen mid-single-digit growth in their Physician Lab Services, driven by strength in cardiometabolic and general health and wellness testing.

The company's strong relationships with health plans and successful negotiations for renewals have led to double-digit growth in value-based contracts. They are working with health plans to reduce leakage to high-cost labs and redirect volume to Quest, benefiting patients and employers. In hospital lab services, base revenues grew high single digits due to strength in hospital reference testing and partnerships with health systems. The company's hospital strategy is to provide innovative and affordable laboratory testing to improve productivity and patient care. They are actively pursuing professional lab services and hospital outreach acquisitions, and are helping health systems with their lab strategy and monetization. Their analytical solutions are also providing insights to guide hospitals in delivering appropriate tests to patients.

Hospital outreach acquisitions allow health systems to focus on patient care and growth. In the consumer health sector, there was solid base business revenue growth and profitability. Advanced diagnostics, such as molecular genomics and oncology, contributed to double-digit revenue growth in areas such as neurology, women's health, and infectious disease. The company's Alzheimer's disease portfolio, including AD-Detect blood testing services, saw strong demand. The FDA granted breakthrough designation for a companion diagnostic for Duchenne muscular dystrophy gene therapy.

The company's FDA designation for AAV testing puts them at the forefront of innovation in cell and gene therapies and allows for potential collaborations with other biopharmaceutical companies. The acquisition of Haystack Oncology positions the company to enter the liquid biopsy market and launch their first MRD test in 2024. The Invigorate program is on track to deliver productivity improvements and savings, with examples including front-end automation, OCR technology, and optimizing real estate. The company also offers their perspective on the FDA's proposed regulation of laboratory developed tests as medical devices.

The FDA's proposed rule would have a negative impact on patient care by limiting access, slowing innovation, and increasing costs. The company's consolidated revenues for the quarter were $2.3 billion, with base business revenues growing and COVID-19 testing revenues declining. Total volume and revenue per requisition also declined, but base business revenue per requisition saw a slight increase. Operating income for the quarter was $342 million, or 14.9% of revenues, compared to $392 million, or 15.8% of revenues, in the previous year. On an adjusted basis, operating income was $380 million, or 16.6% of revenues, compared to $423 million, or 17% of revenues, in the previous year.

The year-over-year decline in adjusted operating income is primarily due to lower COVID-19 testing revenues, wage increases, and higher benefit costs, but this was partially offset by growth in the base business, cost management efforts, and headcount reductions. The company's reported and adjusted EPS both decreased compared to the previous year, and operating cash flow declined due to lower income and timing of collections. The company has updated its full year 2023 guidance, with expected revenues of $9.19 billion to $9.24 billion, reported EPS of $7.61 to $7.71, and adjusted EPS of $8.65 to $8.75. The company remains focused on driving growth through its base business, strategic health plan relationships, and potential M&A opportunities.

During an earnings call, Jim Davis and Sam Samad of an undisclosed company discuss their progress on employee turnover and margin goals. They mention improvements in turnover, but it is not yet back to pre-COVID levels. They also mention making investments in frontline staff and phlebotomists in anticipation of winter volumes. They expect to be slightly below their 16.5% margin goal for the year, but note that they have made progress in improving margins since the first quarter when they had a higher COVID revenue.

In the third quarter, COVID had minimal impact on the company's results, accounting for only 1% of total revenue with a reimbursement of $50. The company is proud of its productivity efforts and the progress made by its teams in Q1, Q2, and Q3. When asked about the potential impact of the FDA's proposed regulation on Laboratory Developed Tests (LDTs), the company's CEO stated that it is still too early to determine the exact cost, as the rule is still in the commentary stage. However, LDTs make up less than 10% of the company's operations and they will work with their trade association to address any concerns.

James Davis, the speaker, is asked about the current environment in DC and how it may affect PAMA and SALSA going into 2024. He acknowledges that the current environment may make comprehensive PAMA reform more difficult, but a delay in the PAMA cuts is likely due to a new data collection process. The likelihood of a fourth delay is high, but it will likely be part of a broader health care package. The next question is about the sequential margin progression for the company, which is expected to be better than pre-COVID levels due to factors such as CIT Invigorate and lower deferred compensation.

Sam Samad, responding to a question about offsetting costs related to oil and commodities, explains that the company expects positive price, profitability in CIT, cost reductions, and improved productivity to drive better margins in the fourth quarter. However, they are still experiencing higher turnover rates than before the pandemic.

The speaker discusses the impact of strong utilization and targeted increases on frontline staff and phlebotomists on the company's third quarter results. They also mention the lower revenues in Q3 compared to Q2 and attribute the decline in gross margins to this, with COVID contributing to a portion of the decline. The speaker also mentions the impact of seasonality on revenues.

In Q2, due to the PHE not ending until midway through the quarter, there was a higher price for COVID tests, which resulted in a lower gross margin in Q3. The company's productivity efforts, including the use of automation and artificial intelligence, are expected to yield a 3% improvement in costs and will continue into 2024. The company is also working on improving reimbursement and reducing denials, as well as implementing OCR technology to read paper requests. They are confident in their productivity efforts and will continue to invest in them.

The speaker discusses the potential impact of the PAMA delay on the company's bottom line and mentions their satisfaction with the growth seen from their base business. They will consider investment opportunities and returning free cash to shareholders if the delay occurs. They also mention reimbursement for their Alzheimer's diagnostics test and primarily bill health systems for it.

The speaker discusses the reimbursement and growth of a particular test, as well as the uncertainty surrounding PAMA and its potential impact on the company's plans and investments. They also mention efforts to reduce leakage to high cost labs.

Quest Diagnostics is focusing on reducing leakage to out-of-network labs and steering work from high-priced in-network labs to independent labs like themselves. This involves close collaboration with commercial payers and providing information to their commercial team to convince customers to switch to Quest Diagnostics. The company is also messaging patients and physicians to remind them of the cost savings of using independent labs. The recent contract renewals with major payer partners have been successful, with potential incentives in place to drive volumes.

Jim Davis discusses changes in pricing, duration, and terms for the company. The focus is on establishing fair prices and improving the share of commercial payer spend. Incentives are designed to encourage this, such as reducing rates over time for hospital outreach acquisitions. The company also works on value-based contracts and arrangements with ACO reach organizations and physician groups taking on risk.

The speaker discusses the positive impact of relationships in the lab industry and their role in managing risk and healthcare costs. They also address a slight increase in AR and DSOs, which they attribute to normal trends and timing, and mention that weather and weekdays may have had a small impact on base earning growth.

The speaker discusses the impact of the fourth of July falling on a Tuesday this year, causing Monday and Tuesday to be bad days compared to last year. They mention the progress of Haystack and its expected timeline, as well as the financial implications of its approval process.

The company expects EPS dilution to be in the $0.15 to $0.20 range this year, but it will improve on an annual basis in 2024 and 2025. They also expect operating margin to improve by 75 to 150 basis points over the next 3 years, with the lower end being affected by PAMA and the higher end by comprehensive reform or a delay in PAMA. This has not changed since it was announced at Investor Day.

The company's operating margin expectations for 2023 have decreased, but they still expect positive drivers such as pricing environment, growth investments, and productivity improvements to continue in 2024. Turnover may or may not improve in 2024. The company is also encouraged by volume trends in physician offices and health systems.

The company is optimistic about their M&A opportunities in the coming months. They believe that their current baseline is the right one to build off of, factoring in factors like productivity gains and PAMA. They also anticipate a drop in revenue due to COVID, but are still confident in their 75-150 basis point improvement in operating margin over the next three years. The company's teams are working hard on hospital outreach and PLS opportunities.

Quest Diagnostics CEO Jim Davis discusses the trends in healthcare and how they are affecting the company. He mentions that the cost of capital is increasing for health systems, causing them to focus on investments that drive growth, such as neurology, cardiology, cancer, and obstetrics. This allows Quest Diagnostics to make investments in laboratories. Davis also highlights the example of New York Presby selling their outreach business to focus on growth-driving investments. He thanks the Quest Diagnostics team for their performance and invites listeners to access a transcript and replay of the call on the company's website.

This summary was generated with AI and may contain some inaccuracies.