By Stephanie Murg, Managing Director, G2 Intelligence
The nation’s largest provider of laboratory services is not waiting to react to the changing dynamics of healthcare but is balancing aggressive cost-cutting with a decisive focus on diagnostic information services as it looks to convey the value proposition of lab testing, explained Quest Diagnostics President and CEO Steve Rusckowski in an interview-style session at the Goldman Sachs Healthcare CEOs Unscripted Conference, held last Tuesday and Wednesday in Boston.
Quest estimates its current share of the independent laboratory market at 26 percent, relative to LabCorp’s share of approximately 20 percent. “Organic volumes are starting to improve,” said Rusckowski, who expects the independent lab market to grow by between 2 percent and 3 percent this year. “But within that there are pockets of significant growth, and that’s where we’re focusing more of the resources in our portfolio.”
Esoteric testing continues to be a growth driver for Quest, and Rusckowski singled out BRCA testing as an offering that will also set the company in good stead as healthcare moves away from a fee-for-service model. “We offer a lot of value in the whole value chain for bundled payment,” he said. “When this goes forward and as this goes forward, we’re going to justify our value and make sure we get that value back. It’s a small percentage today, already, of a large cost structure.”
As Quest moves ahead with internal cost-cutting and process improvement initiatives that are now estimated to save the company $1.3 billion by 2017, Rusckowski is looking to continue making “modest investments” in higher-growth segments. “I do believe that there is a continued opportunity to consolidate this marketplace,” he noted. Acquisitions are expected to account for 1 percent to 2 percent of Quest’s projected 2015 revenue growth of between 2 percent and 5 percent.
Asked for his take on LabCorp’s monster deal, the $6.1 billion acquisition of Covance announced in November 2014, Rusckowski pointed out the potential upsides for Quest, including reduced competition for future assets that would appeal to both companies and the chance to gain market share from contract research organizations that would no longer want to contract with LabCorp once it has merged with one of their competitors. “You can’t do an acquisition like that without it being distracting,” he added. “So this could be an opportunity for us.”