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LabCorp, Quest CEOs Bullish on Future Growth

by | Feb 25, 2015

The annual J.P. Morgan Healthcare Conference held in San Francisco earlier this month offers the high finance equivalent of speed dating—placing companies face-to-face with venture capital firms and other potential suitors. But it is also a speed “road show” of sorts, where CEOs from virtually every health care niche give 20-minute, 30,000-foot presentations on the […]

The annual J.P. Morgan Healthcare Conference held in San Francisco earlier this month offers the high finance equivalent of speed dating—placing companies face-to-face with venture capital firms and other potential suitors. But it is also a speed “road show” of sorts, where CEOs from virtually every health care niche give 20-minute, 30,000-foot presentations on the state of their companies. The two big national laboratories—Quest Diagnostics and LabCorp—both gave presentations at the event, and their respective chief executive officers essentially said the same thing: The lab sector is growing, and both will play a key role in furthering its growth and their own. Quest Diagnostics CEO Steve Rusckowski noted that the lab industry is valued at $72 billion and is growing at 4 percent a year. He considers the Patient Protection and Affordable Care Act (ACA) to be a “net positive” for the industry in 2014. And despite the opinion of some that Quest and LabCorp represent a duopoly, he said that together they share only 43 percent of what he calls a “highly fragmented market.” However, Rusckowski admitted that his New Jersey-based company is not pacing industry growth and needs to pick up volume. “Our company is not growing, and it needs to start growing,” he said. By contrast, LabCorp has had fairly solid revenue growth over the past five years, but CEO David King said he is not satisfied with the status quo. He believes there is a shift “in the fundamental center of gravity in health care delivery,” with a lot more activity moving toward large hospital systems, physician practices, patient-centered medical homes, and accountable care organizations (ACOs). And while LabCorp is preparing to accommodate such shifts, he noted that the company would continue to deploy its capital evenly between acquisitions and share repurchasing. However, in the absence of attractive acquisition targets, share buybacks would likely receive more capital. Rusckowski projected some organic growth from the ACA but said that the company will need to beef up its volume of molecular and genetic medicine, as well as accommodate the increased number of patients who will be insured under ACA but will also be coping with relatively high out-of-pocket costs. King said LabCorp would invest in its IT infrastructure and robotics to make testing and specimen sorting more efficient and better integrate lab results into electronic health records—developments he considers crucial given the continued proliferation of ACOs. The company is also further building out its portal for patients to allow them to access tests and pay bills more easily. In addition, LabCorp is expanding its esoteric testing capabilities. Quest will be focusing on providing more services to hospitals and likely acquiring some of their laboratories. It will also seek to expand its services outside of the United States, but Rusckowski did not provide specifics. Last fall, Quest announced a major reorganization that eliminated three layers of management and put the company’s focus on diagnostic solutions and information services. King also noted that hospitals would be a focus of LabCorp business as well. He said that up to 55 percent of the lab business is still controlled by hospitals, even though the national labs can perform the work for less. “There’s a great opportunity to shift share to the lowest possible provider,” King said.

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