LabCorp weathered pricing pressures and new competition from Quest Diagnostics for key accounts to beat analyst earnings expectations in the first quarter, enabling it to slightly raise its guidance for 2019.
Reimbursement changes triggered by the Protecting Access to Medicare Act created a 1.5% diagnostic revenue headwind that contributed to a 2.7% drop in reported sales at the unit, the company said.
PAMA hit LabCorp harder than in 2018, but the added hurdle was in line with forecasts, leading to the company posting results that broadly lived up to expectations.
LabCorp began 2019 facing multiple challenges. PAMA, which forced LabCorp to lower its guidance in 2018, is expected to hurt the company even worse this year. LabCorp is also contending with competition from Quest for UnitedHealthcare and Horizon Blue Cross Blue Shield of New Jersey work.
The factors contributed to diagnostic revenues falling 2.7% to $1.72 billion during the first quarter, but sales grew 0.4% on an organic basis. Excluding the impact of PAMA, organic sales growth came in at 1.9%.
LabCorp grew requisition volumes by 0.8% on an organic basis, despite increased competition for key accounts and one fewer revenue day than the comparison quarter. The performance is stronger than that seen in the fourth quarter, when organic requisition volumes fell by 0.1%, in spite of the loss of exclusivity on key contracts at the start of the year.
"As we projected, United and Horizon volumes declined in January," LabCorp CEO David King said on a first quarter conference call with investors. Volumes stabilized as the quarter progressed, though, limiting the net negative effect of the contract changes on requisitions to around 0.7%.
That figure, which is smaller than analysts expected, reflects LabCorp's success in keeping hold of UnitedHealth and Horizon business, plus inroads it has made into the smaller pool of Aetna patients it gained access to at the start of the year.
"Aetna growth was strong and has continued to increase throughout the quarter," King said.
Those positives were offset by the negative effects of PAMA and other forces on operating income and revenue per requisition. LabCorp reported a 15% drop in adjusted diagnostic operating income. The profit margin fell almost three percentage points to 18%. LabCorp partly blamed the downward trends on the $27 million negative impact of PAMA, which also caused revenue per requisition to fall by 0.4%.
The difficulties at the diagnostic unit were mitigated by fast-rising operating income at LabCorp's Covance drug development unit, enabling the company to beat earnings expectations despite falling slightly short of the consensus revenue forecast. LabCorp responded to the results by raising both the low and high ends of its 2019 earnings per share guidance by five cents.
LabCorp's stock jumped more than 3% in early morning trading following its earnings call.