LabCorp CEO Demurs During Earnings Call, Is Blunt at Lab Institute

Running a multibillion-dollar company often requires different tones to get specific results, and LabCorp Chief Executive Officer Dave King demonstrated extraordinary range in modulating them earlier this month. The restrained King delivered LabCorp’s third-quarter earnings report to analysts on Oct. 18. His company’s performance topped its rival Quest Diagnostics but reflected the struggles the laboratory sector is facing these days trying to grow. Net income for LabCorp in the third quarter was $148.3 million on revenues of $1.46 billion, compared to net income of $148 million on revenues of $1.42 billion. Although both were marginal improvements, for the first nine months of 2013, net income was $448.7 million on revenues of $4.37 billion, compared to net income of $462.9 million on revenues of $4.27 billion for the first nine months of 2012. In a call with analysts, King admitted LabCorp was having difficulty collecting payments on some molecular tests because pricing had still not yet been firmly established but politely declined to provide specifics. He also declined to provide any forecasts about sales for the BRCA test the company will start offering later this year and details about new agreements involving its BeaconHealth platform in Florida. It was a much blunter King who addressed the audience at G2 Intelligence’s Lab Institute two days prior. The institute was held Oct. 16-18 in Arlington, Va. King said the sector needs to be more aggressive in its messaging that it is being hurt by payment cuts and lower utilization due to higher out-of-pocket costs for patients. He also is concerned that regulators believe LabCorp and Quest comprise much of the lab sector, thereby overlooking the concerns of the other 1,500 to 2,000 smaller operators. “The community labs and the service provided by community labs to our health care system are fundamental. They’re vital,” King said. CMS Proposal ‘Mind-Boggling’ One particular issue is a proposal by the Centers for Medicare and Medicaid Services (CMS) to cap payment for some laboratory tests provided by independent labs at rates paid under Medicare’s Outpatient Prospective Payment System. While officials with CMS wants payment rates to be the same at every site of service, independent laboratories get hurt because they don’t have the flexibility hospitals have in laying off costs to other departments—it’s a standalone expense for them. “You can’t take allocated costs and direct costs and compare them,” King said. Although King noted that members of Congress have supported labs on this position, getting CMS officials to adopt the same stance is a separate challenge. He observed that some officials with the agency have expressed puzzlement about the value labs provide, a position he labeled “mind-boggling.” King also noted that labs are often reimbursed at a fraction of the National Limitation Amount in some states and much higher rates in others, making for revenue imbalances. “We ought to be able to have an open and transparent dialogue with CMS about how labs are paid. The problem is . . . what we have is a black box,” King said. As a result, labs may get paid for one thing one year and not get paid for it the next year. “There is a lack of consistency [from both CMS] and the carriers. The Uniform Coverage Policies are all out of uniform, because they are all over the place.” King suggested pushing for negotiated rulemaking around the fee schedules so both sides can have equal input. Regarding the new molecular code prices, King said he was greatly concerned no price was determined for cystic fibrosis testing, likely because it’s not used much by Medicare patients. However, he believes it could lead to coverage denials by commercial payers. King believes the matter of molecular test coverage may eventually have to be litigated. Takeaway: National labs do not comprise the entire laboratory landscape, and the sector must be more assertive in voicing its concerns to lawmakers and regulators.