James E. Davis
Chairman, Chief Executive Officer and President at Quest Diagnostics
Thanks, Shawn, and good morning, everyone.
In the first quarter, we delivered nearly 6% base business revenue growth, continuing the strong momentum of recent quarters. We also grew total revenues for the first time since the height of the pandemic nearly three years ago. Our strong commercial focus on physicians and hospitals, combined with our broad health plan access enabled us to take advantage of sustained high rates of health care utilization and drive new customer growth. Our investments in advanced diagnostics also enabled double-digit growth within multiple key clinical areas, including brain health, women's health and advanced cardiometabolic health.
In addition, our Invigorate initiative, which includes ongoing investments in automation and AI continue to improve productivity as well as service levels and quality. Given the strength of our business, we are raising our guidance for the full year.
Before turning to highlights on the quarter, I'd like to briefly discuss the FDA's proposed rule to regulate laboratory developed testing services. We still encourage the administration to withdraw the proposed rule and engage in advancing appropriate legislation that preserves the critical role of laboratory diagnostics. We are disappointed that the FDA continues to move forward with this regulation, which we believe, if enacted, will compromise patient access to critical lab testing, slow diagnostic innovation, and add unnecessary health care costs. We also believe that the rule raises serious legal issues, including that the FDA lacks the statutory authority to unilaterally regulate these services. While we will be prepared to comply with the rule, we will continue to work with our trade association ACLA on potential next steps.
Now I'll recap our strategy and discuss highlights from the first quarter. Then Sam will provide detail on our financial results and talk about our updated financial guidance for 2024.
Our strategy to drive growth is focused on delivering solutions that meet the evolving needs of our core customers, physicians, hospitals and consumers. We enable growth across our customer channels through advanced diagnostics with an intense focus on faster-growing clinical areas, including brain health and molecular genomics and oncology. In addition, acquisitions are a key growth driver with an emphasis on accretive hospital outreach purchases as well as smaller independent labs. Our strategy also includes driving operational improvements across the business with the strategic deployment of automation and AI to improve quality, service, efficiency and the workforce experience.
Here are a few key updates on the progress we've made in each of these areas. In physician lab services, we delivered high-single-digit base business revenue growth driven by sustained high health care utilization, overall market growth and share gains. This growth also reflects new customer wins and our strengthening relationships with physician practices of all sizes, including large multispecialty physician groups and those owned by large retailers. A significant driver of our success in the physician channel is our broad health plan access as approximately 90% of health plan members in the U.S. have access to laboratory services at Quest Diagnostics.
Health plans value our size, scale and innovation. We partner closely with them to reduce laboratory costs through programs that redirect volume from hospital outreach labs and out-of-network labs, which often charge significantly higher prices than we do, raising health care costs for patients and employers.
We also remain disciplined in our pricing strategy as we increase our investments in improving the customer experience such as through digital platform enhancements and adjustments to frontline pay. As we highlighted previously, we successfully renegotiated our large health plan contracts that were up for renewal last year. In addition, more than 50% of our health plan revenues now have some type of value-based incentive.
In physician services, our recent acquisition of Lenco, an independent lab in New York also contributed to growth in the quarter. Our M&A pipeline continues to be robust, and we are making progress with several promising opportunities.
In hospital lab services, we grew base business revenues by mid-single-digits. Hospital reference testing, in particular, continued to grow faster than pre-pandemic trends, maintaining the momentum from last year. Hospitals are sending us more reference testing largely because of our innovation, our quality and our value. They also face persistent challenges with staffing certain roles in specialized fields like histology, microbiology and cytotechnology which we can more easily fill with our talent and our technology.
In general, as hospitals face both staffing and cost challenges, they continue to reevaluate their lab strategies. Additionally, as the cost of capital continues to rise, some are revisiting their investment priorities and are directing more capital into other clinical areas that generate better returns. Quest provides hospitals with a range of ways to help optimize lab operations, whether through reference testing, savings and efficiencies through professional lab services or access to capital by selling their outreach programs. Many hospitals and health system leaders are approaching us with a heightened sense of urgency for help with their lab strategies. As a result, our pipeline of both PLS and outreach opportunities remains very strong.
Consumer initiated testing revenues grew double-digits, while base business revenues nearly doubled, building on the gains that we delivered last year from our consumer-facing platform, questhealth.com. Some of our most popular test categories included general health panels, STDs and tuberculosis testing. We also continue to expand our test menu such as with our launch of PFAS testing for assessing potential exposure to dangerous forever chemicals and are extending our reach through various channel partners.
In advanced diagnostics, we generated strong double-digit revenue growth within several key clinical areas, including brain health, women's health particularly prenatal and hereditary genetics, and advanced cardiometabolic health. Growth in brain health was driven largely by our Alzheimer's disease portfolio of tests which includes our Quest AD-Detect blood test for early risk assessment of Alzheimer's disease and our CSF test for diagnosing and monitoring. We are launching our AD-Detect p-tau217 blood test to providers this week and we intend to add additional biomarkers this year to further expand our menu.
In molecular genomics and oncology, we completed the validation of our Haystack MRD test in March and have oversubscribed our Haystack MRD early experience program with nearly 20 leading cancer institutions as participants. The early experience program is the final step to prepare for our broad national launch of the clinical test later this year.
We are also excited about the opportunities in our early blood-based cancer screening. This quarter, our Louisville, Texas site received the first specimens for the PROMISE clinical trial on a liquid biopsy screening test for colorectal cancer from our partner Universal DX. We look forward to supporting Universal's efforts to gain U.S. regulatory approval for this test.
And lastly, our STEP500 [Phonetic] somatic tumor sequencing service, which helps providers select therapy for late-stage cancers based on tumor mutation profiles is generating interest from large cancer centers. Our investments in cancer screening, treatment selection and monitoring are positioning us to be a leader in the MRD space and other fast-growth molecular genomics and oncology markets.
Turning to operational excellence. Our Invigorate program aims to deliver a targeted 3% annual cost savings and productivity improvements. During the quarter, we continued to deploy automation and AI to improve productivity as well as service levels and quality. For instance, we made progress creating what we term a digital front door, which will use AI in our website and service center kiosks to answer basic questions from patients reducing workload on phlebotomists and calls to our customer service team. We also recently automated elements of the specimen preparation process in several labs and expect to deploy these systems across other sites in 2024. These systems make our front-end operations more efficient and improve quality while also freeing our employees to focus on other value-added work.
Finally, I'd like to personally thank my Quest colleagues for delivering a superior customer experience. Our industry just celebrated Lab Week, which reminds us of the key role labs play at the heart of health care. I'm proud that our nearly 50,000 employees bring Quest purpose to life every day, working together to create a healthier world, one life at a time.
And with that, I'll turn it over to Sam to provide more details on our performance and our 2024 guidance. Sam?
