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S&P 500   5,137.08
DOW   39,087.38
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Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
South Korean doctors hold massive anti-government rally over medical school recruitment plan
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
South Korean doctors hold massive anti-government rally over medical school recruitment plan
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
Lawyers who successfully argued Musk pay package was illegal seek $5.6 billion in Tesla stock
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
South Korean doctors hold massive anti-government rally over medical school recruitment plan
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Sports analytics may be outnumbered when it comes to artificial intelligence
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
What to watch for as China's major political meeting of the year gets underway

Quest Diagnostics Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Shawn Bevec
    Vice President, Investor Relations
  • Stephen Rusckowski
    Chairman, Chief Executive Officer and President
  • James E. Davis
    Executive Vice President, General Diagnostics
  • Mark Guinan
    Executive Vice President and Chief Financial Officer

Presentation

Operator

Welcome to the Quest Diagnostics Fourth Quarter and Full Year 2021 Conference Call. [Operator Instructions] Now I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Thank you and good morning. I'm joined by Steve Rusckowski, our Chairman, Chief Executive Officer, and President; Mark Guinan, our Chief Financial Officer, and Jim Davis, our Executive Vice President, General Diagnostics and Chief Executive Officer of.

During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties, including the impact of the COVID-19 pandemic that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent Annual Report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K.

The company continues to believe that the impact of the COVID-19 pandemic on future operating results, cash flows and/or its financial condition will be primarily driven by the pandemic's severity and duration; healthcare insurer, government and client payer reimbursement rates for COVID-19 molecular tests; the pandemic's impact on the US healthcare system and the US economy; and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, including the impact of vaccination efforts, which are drivers beyond the company's knowledge and control.

For this call, references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS. Any references to base business, testing, revenues or volumes refer to the performance of our business excluding COVID-19 testing. Growth rates associated with our long-term outlook projections, including total revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates. Finally, revenue growth rates from acquisitions will be measured against our base business.

Now, here is Steve Rusckowski.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thanks, Shawn. Thanks, everyone for joining us today. In the past two years, our 50,000 Quest employees have risen to the challenge of COVID-19, innovating, persevering, and remaining committed to the patients and customers we serve. While doing so, they also grew our base business by more than 19% in 2021, achieving record levels. I'm extremely proud of what we have accomplished as a team. So we have a lot of news to cover this morning and I want to get into that, so we can head for your questions. So let's get started.

So first, I'll start by sharing some color on the leadership transition we've announced this morning, then we'll review our performance for the fourth quarter and the full year of 2021. And then finally, Mark will provide more detail on our financial results and talk about our financial outlook for 2022.

So as you have seen in our announcement this morning, we've begun implementing a gradual leadership succession plan under which Jim Davis, Executive Vice President of General Diagnostics will succeed me to become Chief Executive Officer on November 1, 2022. At that time. I will continue to serve on the Quest Board of Directors as Executive Chairman.

Quest Diagnostics is a great company. So it is well-positioned to continue to deliver shareholder value. As I approach the decade in the role, the Board and I determined that now is the right time to begin to turn over the helm to a new leader. Jim Davis is extremely well qualified to be CEO, having manage a large part of this company in his role as Executive Vice President. He has deep knowledge of Quest, the healthcare industry, and the corporate world, gained through more than 35 years of business experience. Jim has wide perspective and will be a strong CEO.

You know, when I took this role nearly 10 years ago, Quest was not growing, nor realizing its potential. We launched a new strategy, Our New Quest, to drive transformational change. To drive that change, we built a new leadership team and Jim has been a key member of that team. We've built a business strategy to accelerate growth and drive operational excellence. To drive growth, we focused on improving relationships with health plans in hospital systems in the expanding, fast-growing businesses, in way of Diagnostics and Consumer testing.

In addition, we've added about 2% revenue growth on average through accretive, strategically aligned acquisitions over the last several years. We have driven operational excellence and our Invigorate Program has consistently improved quality and customer experience while generating 3% productivity each year. And we've made more inclusive by increasing the diversity on our Board and amongst our management ranks.

Finally, we established Quest for Health Equity in 2020 over a $100 million committed to reduce health care disparities among other served in the United States, particularly in communities of color. I am very proud of what we've accomplished together and if you consider the opportunities in front of us, in many ways we're just getting started. We have a strong team, and Jim has been a key leader in our transformation. He runs our General Diagnostics business, which accounts for more than 80% of revenues, and three-quarters of our employees. He manages operations, including sales and marketing, patient services, logistics, laboratories, billing, and customer services. He also oversees and drive operational excellence strategy, which includes our Invigorate Program. He has provided enterprise oversight for pandemic response and if that wasn't enough, he also lends his support for the Quest ESG strategy.

So Jim, congratulations. I look forward to working very closely with you through this transition.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Hey, thanks Steve. Really look forward to working closely with you over the next eight months and ensuring a very successful transition. You know it's a tremendous honor to have the opportunity to succeed you in Quest and lead Quest into the next phase of our growth. We have a very powerful vision in Quest of empowering better health and diagnostic insights. Our business strategy is straightforward and welcome to, and our company has never been more central to patients and to the health care system as we've seen during this pandemic.

I really look forward to working with the management team and all 50,000 employees to build on the strong foundation that Quest has put in place. Quest future is really bright and we're extremely well-positioned to continue to create value for our shareholders and all that we serve.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thanks, Jim. Now at the same time, Mark is planning to retire this year. Mark has been in this role for more than eight years, and helped navigate us to the strong position we are in today. We have begun a process in which I will be working closely with Jim to identified Quest's new CFO and Mark will participate in the selection process. He will remain in the role through the transition.

Mark, I want to thank you for your many contributions, your partnership, and your friendship. You have been a key member of our leadership team and we have transformed Quest and accelerate its growth.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Thanks, Steve. I appreciate the kind words. I just want to take a minute to say that I'm proud to be part of an important company that makes a positive contribution to the country and I've enjoyed being part of it. Now, it's time for me to step faster retire. I'm looking forward to participating in the process to identify my successor who can support Steve and Jim and Quest in next phase of growth.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Now turning to our results, we closed out 2021 with another record year of revenue, earnings, and cash from operations, our base business recovery throughout the year and we experienced strong demand for COVID-19 testing services. So for the full year 2021, total revenues grew by more than 14% to $10.8 billion. Earnings per share increased by nearly 49% on a reported basis to $15.55 and more than 27% on an adjusted basis to $14.24. Cash provided by operations increased by more than 11% to $2.2 billion. And for the fourth quarter, total revenues were $2.7 billion, a decrease of roughly 9% versus 2020, when COVID 19 volumes were certain. Earnings per share were $3.12 on a reported basis and $3.33 on an adjusted basis, both down approximately 26% versus the prior year.

So I'd like to share some perspective on the role of COVID-19 testing going forward. A lot of progress has been made in the battle against COVID-19, but we believe it isn't going away anytime soon. Our molecular volumes again this year strong with volumes peaking in January. Testing will continue to play an important part of managing COVID-19 and we believe that molecular testing remains the gold standard.

We continue to perform well throughout the surge, maintaining average turnaround times of two days or less for COVID molecular testing. We will continue to maintain appropriate testing capacities, and staffing levels for any additional service throughout this year, if they emerge. We also continue to believe there will be a bigger role for serology testing and how we measure COVID-19 protection going forward. Ultimately, we expect COVID-19 testing to eventually more flu-like and become a permanent part of our portfolio going forward.

Now turning to our base business. We continue to make progress executing our two-point strategy to accelerate growth and drive operational excellence. While we delivered 2% revenue growth, our base business from acquisitions again last year. In the fourth quarter, we acquired the assets of Labtech Diagnostics, a regional independent laboratory serving physicians and patients, primarily in South and North Carolina, Georgia, and Florida. This is the first full-service laboratory owned by Quest in South Carolina.

We also recently announced our acquisition of Pack Health, a patient engagement company that helps individuals adopt healthier behaviors to improve outcomes. This acquisition will bolster our extended pure capabilities. Now since 2012, we have completed more than 40 acquisitions including Outreach Laboratories, regional independent laboratories, and capability enhancing deals. And over the last four years, we've achieved our target of greater than the average of 2% revenue growth on our base business each year from acquisitions.

And then finally, all our M&A funnels remain strong. In 2021, we took full advantage of our strong health plan access, which is approximately 90% of all commercial insured advice in this country. We also made good progress working together with our plans to help companies and their employees save money by reducing denials and out-of-network linkage. Our clients also recognize the value of working with us and we have grown our health revenues faster than our overall revenue is the best level we've ever seen. Hospital health system revenues have grown more than 20% compared to 2019 levels excluding COVID-19 testing, driven largely by the strength of our professional laboratories services contract. Our performance in 2021 benefited from our two largest PLS contracts to date, Hackensack Meridian Health, and Memorial Hermann. Altogether, our PLS business without COVID-19 exceeded a record $500 million in annual revenue last year.

Hospitals have continuously pressure throughout the pandemic. Post pandemic, we believe the same will be true. We believe there will be a continued consolidation and ongoing challenges, for Quest, an opportunity to implement our flexible solutions that'll become more effective and productive. I think advanced diagnostics is critical for the future healthcare. We're building strong momentum in our key growth drivers, which include consumer and hereditary genetics, oncology, and pharma services. In 2021, these test categories accounted for several hundred million dollars of advanced diagnostics portfolio and they're growing more than 25% versus 2020, and nearly 33% versus 2019. We are investing aggressively in areas with potential for future differentiation to grow our advanced diagnostics value proposition including automatic test next-gen sequencing, bioinformatics, the salesforce, and customer service. We're leveraging our scale and expertise to give patients and fighters greater access to important innovations such as liquid biopsy and digital pathology.

Advanced diagnostics is one of the faster-growing areas of our portfolio. Our strategy and investments in this area will enable us to achieve high single-digit revenue growth going forward. And we're equally excited about the opportunities we see in our direct-to-consumer testing business. Revenues for Quest Direct services nearly doubled to more than $17 billion in 2021, driven by both the basis is probably the COVID-19 testing. We non-COVID consumer diagnostic market will experience double-digit growth over the next several years and we're on track to build the $250 million direct-to-consumer business by 2025. We're ramping up our investments in the business, launching a new and improved digital experience later this year, and we're also investing in an enhancements to the in-person customer experience at our patient service centers.

So we're off to a good start to 2022. We're building on our long-term relationships with Walmart by recently launching a consumer-initiated laboratory testing on walmart.com through our solution powered by Quest Direct and the MyQuest platform now has nearly 23 million users, up more than 3 billion in the past quarter.

We're very excited about our longer-term growth opportunities in advanced diagnostics and direct-to-consumer testing and our increasing investments in 2021, the strength in our business, and accelerate growth beyond the pandemic. These investments were made possible with the record cash in earnings we generated over the past few years.

Now, the second part of our two-point strategy is to drive operational excellence. We remain laser-focused on improving both operation quality and efficiency, which go hand to hand. In 2021, the Invigorate Program exceeded our goal of 3% productivity improvement. We made good progress last year in procurement supply savings as well as reducing health plan denials and improving patient collections at the time of service. While we faced modest inflationary wave pressures in 2021, on the supply cost side, we have more than offset any increases with cost savings from our suppliers. Historically, our Invigorate productivity savings have been met of any inflationary increases. Beyond that, we continue to drive additional productivity improvements with platform consolidation and greater use of automation and artificial intelligence.

Now, I'll turn to our salesforce. Excuse me. Now turning to our workforce, Quest employees are highly engaged, based on the results of our quarterly surveys. In a challenging labor market, we are focused and are still seeing improvements in engagement and retention. Our team has done a lot to create and start to work phase, and we continue to do everything we can to attract, recruit and retain talent.

We're entering 2022 in a strong position within the lab industry and more broadly throughout healthcare. Our base business is poised to build off the record revenues we achieved last year and we're investing to accelerate growth. We expect to see continued demand for COVID-19 testing services, albeit at lower levels than the last two years. The delay of the 2022 PAMA cuts announced last year was a good outcome for our industry and medicare beneficiaries. However, it will continue to be hard at work in 2022 with our trade association, and members of Congress with the goal of ours to get a permanent fix to PAMA.

We remain committed to our capital deployment strategy of returning the majority of our free cash flow to our shareholders. This morning, we raised our dividend for the 11th time since 2011. We expect to have more than $1 billion in cash available this year for M&A and share repurchases.

So putting it all together, our 2022 guidance reflects strong momentum and investment in our base business, balance with the a but expected decline in COVID-19 testing revenues. Before turning it over to Mark, I'd like to recognize and thank once again all of our employees who really have been the frontlines of the pandemic and continue to serve the healthcare needs of patients who depend on Quest every day.

Now Mark will provide more detail on our performance and our 2022 guidance. Mark?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Thanks, Steve. In the fourth quarter, consolidated revenues were $2.74 billion, down 8.6% versus the prior year. Revenues for Diagnostic Information Services declined 8.5% compared to the prior year. The decline reflected lower revenue from COVID-19 testing services versus the fourth quarter of 2020, partially offset by continued growth in our base testing revenue.

Compared to 2019, our base DIS revenue grew approximately 6% in the fourth quarter and was up more than 1% excluding acquisitions. Volume measured by the number of requisitions increased 1.3% versus the prior year with acquisitions contributing 1.1%. Compared to our fourth quarter 2019 baseline total base testing volumes increased more than 10%. Excluding acquisitions, total base testing volumes grew approximately 5% versus 2019 and benefited from new PLS contracts that have ramped over the last year.

The progress we made in our base business throughout 2021 continued in the fourth quarter and base testing volumes remained consistent with our prior outlook. As many of you know, COVID-19 testing volumes moderated early in the fourth quarter, following the peak of the delta in September, but then surged again in early December as Omicron variant spread across the US.

Together with our JV partners into our Quest, we resulted approximately 7.9 million molecular tests. Quest alone resulted in roughly 7.3 million molecular tests and nearly 7000 serology tests in the fourth quarter. In January, our COVID 19 molecular volumes averaged approximately 120,000 tests per day and over including send or request, with volumes peaking in the middle of the month.

Revenue per requisition declined 9.8% versus the prior year, driven primarily by lower COVID-19 molecular volume. In the fourth quarter, increases in our base revenue per requisition were more than offset by the impact of recent PLS wins. Modest unit price headwinds remained consistent with our expectations.

Reported operating income in the fourth quarter was $536 million or 19.5% of revenues compared to $795 million or 26.5% of revenues last year. On an adjusted basis, operating income in Q4 was suddenly $579 million or 21.1% of revenues compared to $860 million or 28.6% of revenues last year. As you may recall, the updated 2021 guidance we shared in October contemplated a lower adjusted operating margin, both year-over-year and versus 3Q. The year-over-year decline was primarily driven by lower COVID-19 testing revenues and higher COVID-19 testing costs, headcount and wage increases, and ramping strategic growth investments.

It's important to note that over time, a growing portion of our COVID-19 molecular testing volumes have come from non-traditional channels, which carry additional expenses and logistics costs. Also, spiking COVID-19 positivity rates across the country in December eliminated our pooling capability, which further increased COVID-19 testing cost late in the quarter. In addition, we also experienced higher than anticipated employee health care costs in the fourth quarter, primarily related to COVID-19.

Reported EPS was $3.12 in the quarter compared to $4.21 a year ago. Adjusted EPS was $3.33 compared to $4.48 last year. Cash provided by operations was $2.23 billion in 2021 versus $2.01 billion in the prior year. We completed our $1.5 billion ASR in November and repurchased an additional $310 million in stock in the fourth quarter. This brings total share repurchases to more than $2.2 billion in 2021, and we ended the year with $872 million on the balance sheet.

Before turning to guidance, I'd like to comment on recent trends we've seen in our labor costs. As Steve noted, we've been managing through a challenging labor environment, while wage inflation, including our annual increase is expected to be between 3% to 4% this year. The increase in our total salaries, wages and benefits is expected to be below 3% in 2022, given the reset of our annual performance compensation and lower expected over time. As agreement, all employees are eligible for annual performance cost.

Now turning to guidance, we estimate full-year 2022 results as follows. Revenue is expected to be between $9 billion and $9.5 billion, a decline of approximately 12% to 17% versus the prior-year. Base business revenues are expected to be between $8.3 billion today $8.5 billion, an increase of approximately 3.5% to 6%. COVID-19 testing revenues are expected to be between $700 million and $1 billion, a decline of approximately 64% to 75%. Reported EPS is expected to be in a range of $7.63 and $8.33, and adjusted EPS to be in a range of $8.65 to $9.35. Cash provided by operations is expected to be at least $1.6 billion, and capital expenditures are expected to be approximately $400 million.

Before concluding, I'll touch on some assumptions embedded in our 2022 guidance. As Steve said, we're entering 2022 in a strong position. Our guidance assumes COVID-19 molecular volumes to average between 65,000 to 80,000 tests per day in Q1, representing a decline from January levels and approximately 20,000 to 35,000 tests per day for the full year. For COVID-19 serology volumes, the guidance assumes approximately 3000 tests per day for the full year. While our guidance does not currently anticipate another COVID wave, we'll remain ready from an operational standpoint to handle any future surges.

Last month, the Public Health Emergency was again extended another 90 days for April. We assume average reimbursement for COVID-19 molecular testing to hold relatively steady through this period. While the public health emergency could continue to get renewed beyond April, additional extensions are not captured in our guidance. The earnings we generate from COVID-19 testing have afforded us an opportunity to continue to increase investment in our business. As Steve noted earlier, we continue to ramp investment in our growth pillars, particularly the advanced diagnostics and direct-to-consumer testing opportunities. We are planning to invest approximately $116 million in our growth initiatives this year, which represents an additional $90 million in investments in 2022 versus 2021.

We also continue to incur higher costs to manage our business due to pandemic including expenses to comply with CDC guidelines address ongoing supply chain challenges and maintain adequate staffing levels. We currently forecast these expenses to be approximately $50 million in 2022. As a reminder, we originally expected PAMA cuts of approximately $80 million in 2022. These cuts were delayed one year until 2023.

Finally, we ended 2021 with approximately 124 million diluted shares outstanding. Our guidance assumes no change in our share count in 2022 and only enough share repurchases to offset our employee equity programs and to meet our commitment of the majority of our free cash flow to our shareholders.

I will now turn it back to Steve.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thanks, Mark. Well, to summarize, we had another record year providing critical COVID-19 testing for our country and delivered record revenues, earnings, and cash from operations. We also grew our base business to a record level of 19% versus the prior year. Quest is well-positioned in 2022 to deliver on its commitments. I'm proud of the incredible accomplishments of our 50,000 Quest employees throughout the pandemic. And finally, our team is strong. The business has good momentum and Quest's future is bright as we begin a gradual transition to new leadership. Thank you. We'll be happy to take your questions.


Questions and Answers

Operator

[Operator Instructions] And the first question is coming from Jack Meehan, Nephron Research. Your line is open.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Hey, Jack.

Jack Meehan
Analyst at Nephron Research

Hey, good morning. First, I know this isn't the end, but congrats, Steve, and Mark on the retirement. And Jim, congrats on turning the big seat agreed. This is very well deserved for you.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Thank you, Jack.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thanks, Jack.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Thanks, Jack.

Jack Meehan
Analyst at Nephron Research

So first question, there's been a lot of anxiety around pressures on the lab industry, which I personally find very interesting because historically that's actually been the bulk case request. So would just be great to get your thoughts on what you're hearing from hospitals around outsourcing, have you picked up any new contracts and potential for share gain versus some of these regional and independent labs.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. Thanks, Jeff, for the question. There is lot of pressure in our industry and specifically it hit hospitals. And so we are seeing continued interest in our working with hospital systems and helping them become more efficient and productive with our professional lab services business. So that continues to be a big opportunity. You saw in our prepared remarks, it grew nicely over the last couple of years. We have $0.5 billion business, and therefore as that moves, it moves our enterprise a significant level. So that's number one. Number two is, we are very strong and we continue to drive operational excellence. As you all know, this is not new, it's institutionalized. In Quest, we believe we have the cadence and the capabilities to continue to offset any inflationary pressure we have, and we've done that. We did it last year, and we'll continue to do that going forward. And as I said in my introductory remarks, already included in Invigorate when we talk about inflationary pressures on our cost of sales, we'll provide our Invigorate savings. It's a net number so any increases offset by the savings and it's always been positive for us. We're getting more savings than cost increases and so despite some pressures that we see because of the current times, we're offsetting that. And going forward, we do see that smaller laboratories will have a tougher time keeping up with some of these structures, and therefore, we do have an advantage, and you saw the acquisition we just did with Labtech in South Carolina. We are achieving that 2% growth from acquisitions. So therefore, we believe our strategy has positioned us nicely going forward to take advantage of the changes in front of us given this different time than we've ever seen. So Mark, anything you'd like to add to that?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, I think the other thing that's evolving, Jack, that you didn't mention, I'm sure is on your radar is moves towards transparency on pricing, whether it's surprise billing. Now certainly it's complicated, so even for us, it's not simple with a pandemic. You've got commercial insurance and who can realize and so on. So it's not simple to tell people exactly what the cost is. However, it's absolutely an advantage for the natural absence specifically for. We're encouraged by some of this is kind of one of those secret that a lot of people aren't aware how much better our value is compared to others. And so we really see that together with some of those as we mentioned as another reason that we're going to continue to pick up share and really return to those growth rates we were having before the pandemic started with greater access and the normal tools and value that we bring well beyond our price, including our real-time estimation tool, including our MyQuest app, and all the other things that really enhance the patient experience.

Jack Meehan
Analyst at Nephron Research

Great. And as a follow-up on the disclosure around the fourth quarter, detection testing is 7.9 million total 7.3 resulted by Quest, 600,000 through the referral network. Can you talk about just the profitability on the test that go through the referral network versus those resulted by Sonora Quest? Because I think people just trying to figure out the relative margin upside versus revenue. I'm wondering if maybe that was a factor we weren't considering.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah. So to be clear, the data were referrals network. We have a JV with Sonora Quest and so we wanted to make sure that people were aware that we're doing some math around referral, and on the testing volumes that we don't actually report that revenue because we have a minority ownership stake. So we get a proportional share of the earnings from Sonora Quest as we do with our other minority holdings as we do with our majority holdings through equity earnings. So we just wanted to provide that transparency. But in terms of the pricing and so on so forth, I won't comment specifically on Sonora Quest. But it's not dissimilar. It's not a totally different profit structure than the things that we do ourselves.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

And Jack, during the surge, less than 5% of our total volume is set out to total labs and at this point in time, it's back out into zeroes. So it's only during the surge that we have to rely on any external partner labs, and all those.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, what I did refer to, Jack, and maybe that's what you were asking about was non-traditional channels. And so that's not where we're sending the work, it's actually how we're getting the specimens. So a lot of the work especially early was through our traditional channels, our hospital partners where we were going anyways to collect specimen, and we would leverage all the Quest logistics, all in cases where we had people go into our base centers, we're leveraging that. In this case, we're actually getting it from other providers, CDS is the most notable one. And as we do that we have to have incremental logistics structure with that incremental logistics we're on and then we do pay a fee, you kind of think about it kind of like phlebotomy. But while the work they do to collect the specimen to engage and illustrate the cost of the patient to give them the results and so there is I think the cost that may be if you weren't aware of when we're not getting that specimen through our traditional infrastructure.

Jack Meehan
Analyst at Nephron Research

Great. Thanks for clearing that up.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question.

Operator

And the next question is coming from Ann Hynes Mizuho Securities. Your line is open.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Good morning, Ann.

Ann Hynes
Analyst at Mizuho Securities

Good morning, and congratulations to Steve, Mark, and Jim.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thank you.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Morning, Ann.

Ann Hynes
Analyst at Mizuho Securities

So I just wanted to ask about margins because obviously the stock's down or underperforming year-to-date versus some peers and I think there is a debate on the street about the margin profile for Quest ex COVID. I know you're gained some margin pressure in Q4, it wasn't worse than expected. And a follow-up to that is, again, if you just kind of 2022 people are really focused on what your margin profile will be in 2023 and in your prepared remarks, Mark, you did talk about the growth initiatives that are in 2022, the $160 million, and I think you said $150 million of incremental costs, but I guess like there are so many moving parts with extra labor costs, extra supply costs, you have these growth investments. I guess if we look out to 2023, not giving guidance, like what do you think is repeatable and what is not? And maybe if you can just comment on just the health of how you view your base margins and the base business that would be great.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah. So thanks for the question, Ann. I think it's important one. So first off, we're not deviating from our long-term outlook. So we shared a long-term outlook in March of 2021. And while the CAGRs are going to change because we're going to have a stronger year in 2022 and the CAGRs at quarter-end of that time were put in 2022 forward. The absolute numbers we're not deviating from because they're largely the base business. So we still assume that COVID will materially decline, time will tell. And at that point, it's really all around our base business. So when people are looking at the current profitability of the base business, and I can understand how this happens, one of the flaws in that is that really -- you can't really do the two in isolation. So let me give some example, because we've had such a surprising strong year this year relative to what we expected, driven by COVID, we're paying a significantly higher incentive of performance bonus and that's across the whole employee base. And right now that would not be expected to repeat in next year. So that closed inflated our costs and so to assign all of that cost against the base business, which is what implicitly is done when you did COVID revenues to certain margin drop through, and then you assume back into the base business. That's -- it is not accurate. The other thing is, we have significant incremental costs related to the pandemic, which I mentioned in the prepared remarks, around $50 million of cost. If COVID really goes away, we would expect those costs will largely go away and those costs could really be assigned to COVID, not to the base business. We had quite a bit of over time later in the year and that was related to employee absences driven by the COVID surge and we spent about $25 million more in 2021 than we historically spent it over time, and we would expect that would go away as well as COVID starts to step back. And so again, that is implicitly quite against the base business when you do the high-level math that I've seen a lot of people do. And so the way to think about the base business is obviously from our guidance. We are hundreds of millions of dollars above where we were in 2019. We expect to be back to the growth that we were experiencing pre-pandemic and I know it seems like a long time, but if you look at the first two months and we mentioned this several times of 2020, before the pandemic started even after a full year of the network access we had in 2019, we were still growing mid-single digits. We're going to get back to that growth, okay, in the base business. And the profitability of the big stimulus is going to be similar to what it was before 2019. So hopefully that puts all the pieces together for you. Obviously, if there's anything I didn't clarify, I'd be happy to take a follow-up.

Ann Hynes
Analyst at Mizuho Securities

No, that's very helpful. And just as a follow-up, just to your growth initiatives, like the $90 million incremental in 2022, how should we view that for 2023?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Right, so some of those will ramp down because there are discrete investments to get us where we need to get to. So for instance, a big piece of that is building what we need for our consumer-initiated testing and to move from where we were to a more Amazon like and not that will get completely there, but experience for patients who want to find testing, order it, and pay the bill, etc. It is expensive, it takes a lot of work with marketing analytics to do the appropriate marketing and understanding of customer preferences and respond to customers the appropriate way. There's a lot of IT investment in the near term to get us to that future state. Now, as we're growing that business to a quarter of a billion, which is what we said we'd get to by 2025, there are not going to be some ongoing costs because we're adding people to support that business, so there is an incremental business and there are going to be some variable costs with that. However, as we grow those businesses, we're going to grow fast and so some of those ongoing costs are going to get paid for that faster growth. And then I would say similarly on advanced diagnostics, as we accelerate that growth, some of the resources we're adding today that we're calling out pre that growth are going to be in the run rate and profitability going forward. So the cost won't go away completely, but they will ramp down because some of this is start-up expenses and then that revenue, obviously in the margin is going to pay for those incremental costs over the next several years.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Let me just add to that, remember, when we talked about the share, these investments really started in the back half of 2020, and we talked about an exceptional year in 2020, we talked about an exceptional year in 2021 and therefore, we took advantage of the opportunity invested in accelerated growth entirely consistent with what we shared with you was our growth portfolio and what you see in our results are the benefit those investments. You're seeing great growth in our focus areas that may have diagnostics, those areas in our portfolio that we focus on and these are not insignificant portions of our portfolio. I'll share my introductory remark. These are several hundred millions of dollars of focus for us as we are growing strong double digits versus last year versus 2019, and that's is our consumer-initiated testing business has grown considerably to reach about $70 million, almost half of $250 million and so therefore we're only starting to see the benefit. So as with any of that said, we expect the business return, we're getting some of that business return already '21 we expect more of it in '22. And so when you get into '23, you got [Indecipherable] in the beginning what we're putting is exactly what we laid out in Investor Day, that is, we have a baseline coming out in '22 that we believe in, and what will be shared in our '22 guidance and is probably consistent with that, and that we will continue to grow our earnings to that high-single-digit growth we highlighted in the 9%, and that will continue into '23 and then '24. So we feel, what we've done so far and what we've delivered is entirely consistent with what we believe the prospects, and we do believe the options in front of us are even more attractive than before, because we've had the proceeds with the benefits of COVID accelerated growth that we've experienced.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, just one clarification. So the 7% and 9% was when we thought that we'd do $7.40 to $8 in 2022 and we said we'd be at the upper end of that. So you can pick your number between $7.48 forward $7 to $8 to '23 and '24 and that's dollar level of EPS is what we're saying we can still do obviously since 2022 is turning out based on our guidance a lot higher than we said in March that CAGRs can be lower, but the absolute numbers, we're still committed to at this point.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, we're going to go to the next question, but I just want to let everyone know we won't go back on the outlook. We have a lot of folks in queue, and we want to get all your questions. Operator?

Operator

Your next question is coming from A. J. Rice of Credit Suisse. Your line is have open.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Hey, A. J.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Good morning, A. J.

A. J. Rice
Analyst at Credit Suisse Group

Hello everybody. Best wishes on the transition to all and maybe just to ask M&A pipeline, A, any update on what you're seeing out there with the opportunities that looks like? B, does the management transition cause you in any way to pull back or to pivot in different direction in inorganic growth prospects? And then just maybe finally on the Pack Health deal that was obviously not a huge deal, but a interesting one. Does that suggest a pivot, and what sort of the opportunity there with that acquisition?

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

A. J., thanks. I continue to believe that we can continue to deliver that 2% growth of our base business going forward. We've delivered that in the past and we have every reason to believe that we'll continue going forward. As I mentioned earlier, we continue to see hospitals looking at what we've got, a lot of opportunity for them to rely on us for the testing, and we continue to build and we continue to look at some outreach purposes with hospitals and then as I mentioned Labtech was a good example of regional laboratory and a good piece of of the United States that we picked up as well and we continue to look at acquisitions that build on our portfolio, remember we have this lens of focusing on general diagnostics, and Jim Davis runs that business in addition to that advanced diagnostics. But the third piece is that -- are those services. They take the information that we generate and we provide services and we do this employee population health and we've built on that business to work with health plans on helping them manage the risks with the data and providing services that help them down so Pack Health fits into that direction for the company and we've got some other acquisitions that help us with that direction as well. And you're going to hear more about our continued investment in that space going forward. And also in your question is the management change slow us down in any way, impair what we might do an acquisition. I would say, to the contrary. Jim has been part of the management team for over eight years. He is highly engaged in all acquisitions. He's been instrumental in executing a lot of our acquisitions and all the businesses that he participated are always part of the funnel building that we have. Jim, any remarks about the 40 acquisitions we've done and you're keen to find more opportunities?

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Now, A. J., as Steve said, I've been part of all 40 of those acquisitions and it's not going to slow down. We're not going to do -- we're going to do smart deals. We're going to be selective, but we're going to continue to build our base business. We're going to continue to find niche applications to build out our advanced diagnostics portfolio and we're going to continue to focus on the hospital outreach deals, those that are willing to get out of this business, we're right there waiting to help them.

A. J. Rice
Analyst at Credit Suisse Group

Okay, great. Thanks so much.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

A. J.

Operator

The next question is coming from Patrick Donnelly of Citi. Your line is open.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Hey, Patrick.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Thanks for the question. Maybe just one on some recent payer negotiations, obviously you guys have talked a lot about inflationary pressures and supply chain things, how much does that come up in kind of the negotiations with payers? Are you able to pass that along? I know you guys are in a pretty good place with payers relative to historic levels. So let me just talk through some of those conversations and ability to pass price along and price increases in those payer contracts.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. Thanks, Patrick. Well, so there's a lot of attention these days on inflationary pressures and we think we've handled those questions. We think it's all very manageable for us in terms of our operational excellence programs. And finally the productivity, we need to offset it. So that's one piece of the equation. The other piece is what you're bringing up is around pricing, and we feel good about what we have delivered in that regard. As a matter of fact, if you look at the results for '21, what you find is that there are unit price changes and this is freezing everything from volume, and and just looking at your price changes is below the -- below that 100 basis points that we typically -- we have guided you to dial into expectations going forward. And that's not just for our commercial insurance contract, it's all our businesses, our hospital businesses, our client business, independent of what those clients might be physicians or some other organization we work with. So we continue to make progress on that and we're particularly encouraged by the discussions we're having with health plans, we have shared in the past that actually in the past several negotiations, we've actually introduced price increases and its actually helping us that in fact there is inflationary pressure across all of the healthcare, so therefore we're not alone. So it's our labor base business to pass like some of those costs to them. So we're making good progress and I say the other piece of this, Patrick, is we continue to deliver great value. Our quality gets better, our service gets better, and we do that in a very competitive price already and many of these plans believe that's in the best interest of them and their membership of growing share is to make sure they rely on and flow top-flight laboratories in the case of the healthier they call that for lab network and we have applied to that and we had to demonstrate with evidence that in fact we have great quality, we have great service that we do have very competitive prices. So that trend will continue. When we talk about that, we're going to eventually keep a portion of that to deliver more and more of that which helps you in terms of managing your network. We, in many cases are going to start looking at some price increases going forward. So good progress there. Thanks for asking the question. Mark, is there anything you'd like to add?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, I just want to remind people of what we talked about over our 10 year, we have this Invigorate Program drive about 3% productivity, productivity because some of it is top line enhancing. It's not all around costs and we've mentioned the fact that we have these pay for and one of them has been price erosion. One of them has been annual labor inflation. And then we talked about the fact that as we've got price in a better place, that actually it was helping with margin expansion. So we had enough productivity, more than they paid for us. So now when we look at where we are today, and as Steve mentioned, a much better position. I can't specifically say it's related to inflation, but I can assure you that is part of the conversation in addition to PAMA and the value that we bring. And so we've really moved the conversation dramatically from when we started here to more about value. And fortunately for us, I can share that in the last three national payer contracts, all three of them, we've got an increase. Now, it was modest, but if you compare that to where we've been historically, great news. And that also means that even if we have a little more inflation and I think we've talked about this quite a bit, we've got plenty of Invigorate and that Invigorate now -- this will ne to cover as much of the price erosion that we have historically and that price range and share, it's really heavily in the client bill and as we've talked over the last number of earnings calls that comes from both our hospital clients who are under tremendous pressure and we've shown the reasons for that and also in some states where physicians can be a markup. We have that pressure as well. And really with the commercial payers, we're in a really good place on price, completely.

Patrick Donnelly
Analyst at Smith Barney Citigroup

It's really helpful. I appreciate it. And then just a quick follow-up on COVID, maybe pricing and volume. You mentioned no expectation for the PHE to continue to be extended in the second half, or this is not baked in, sorry. How do you think about the pricing piece both commercial, will they follow and wait for the PHE? And then the volume side, are you expecting it to be endemic, a lot of the diagnostic players have obviously talked about multiple years of COVID revenues going out. Just curious on your take there. Thank you.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. So well, we're assuming in our guidance is we did give some ranges of what we think COVID testing will be, and obviously it will start higher in the first quarter until it goes down. We are hopeful that this current surge will decline throughout the spring and into the summer. And as you mentioned, we did get the 90-day extension and then we are planning in the guidance that that will be extended. But we just don't know. So therefore we're always assuming the worst case, and that -- if that were to come down, yes, we do believe there'll be some recent price changes, if you will, some of our partners. But again, what we've implied in the guidance is a decline in volumes, some decline in pricing and also the assumption that we're not going to get a renewal in emergency. But again, we don't know that. So Mark, anything like that?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, just a reminder. Not that I need to remind you all that the recent CMS determined $51 and so while we don't assume post PHE that everything falls immediately there, there is a pretty steep ramp down and then so for the volume that is in our guidance beyond the PHE in late April, we're assuming a significantly lower reimbursement than we've experienced to date and that we're expecting to get in the late April.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, the next question.

Operator

The next question is coming from Ricky Goldwasser, Morgan Stanley. Your line is open.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Morning, Ricky.

Ricky Goldwasser
Analyst at Morgan Stanley

Good morning and best wishes to all of you. Jim, you're going to be made fourth Quest CEO. I'll be working with. So very excited.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Thank you.

Ricky Goldwasser
Analyst at Morgan Stanley

Dating all the way back to Ken Freeman's days. So I just wanted to go back to what the 2022 baseline is. I think this is really the bulk of the questions that we're getting from investors sort of how should we think about the 2022 on normalized based lines that we can build off for 2023. I know that if you kind of said in response to one of the questions that in terms of absolute EPS, you are where you expected to be last year, but if maybe you could give us a range. We're getting to somewhere between 760 to 780. Is athenormalized baseline for two is it starting point? I just wanted to kind of like see if we're in the ballpark. And then on that, maybe just qualitatively what are the headwinds and tailwinds that we should think about as we think about modeling out to 2023?

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Go ahead, Mark.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, so Ricky, I'm sure you understand, Ricky, even if I was willing, I can't really give you an EPS from the base business. So I think the best thing I can do is point you to pre-pandemic revenue and earnings and tell you that if you look at the growth in the base business based on what we're giving in guidance, the profitability is not dissimilar. So if you can, you can kind of directionally place where that business might be. And the reason I can't really give it's back to what I talked about earlier. So we otherwise signed the $50 million of pandemic expense. Arguably, if we didn't have COVID testing, we would still have that cost and you'd say, okay, let's go back to the base business, but in -- the truth is that we also have the COVID testing and revenue. So we should go give -- COVID revenue should go into the base business and then importantly, when you talk about headwinds and tailwinds. We would expect that cost to go away. It should be temporary because it is specifically tied to CDC guidelines and other things. We talked about some of the other -- some of the things including there like supply disruptions. I don't know how long that's going to last. And we all know it's not just in our business, it's across all aspects of life today and we know it's tomorrow, or 12 months, not sure. That's certainly something we want to absolutely, make sure that we have what we need. And so we are paying premium cost right now relative to what we did pre-pandemic and insurance supplies to give our patient service centers, and laboratories have everything they need, and that's really kind of our insurance which fortunately we can afford to do right now as we also do have that COVID revenue and COVID margin. So really I think that's the best color I can give you, which is the base business is in good shape. We exited Q4 organically back to where we were in 2019. We've done significant M&A over the last couple of years. We've built the PLS business so beyond the organic critical business, we're hundreds of millions of dollars higher. And while the profitability and all that may not be precisely the same, directionally people would feel confident that the profitability has moved with the revenue growth.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

So to remind you, our base business was larger than what we had in 2019. So it has grown, so there is recovered and we're going to grow on top of that and it's implied in our guidance for base business that we intentionally broke out base business from COVID assumptions for 22. So if you got to dissect you will -- what's going on with that business and I keep on reminding you that these investments that we're making are part of our base business and we've started those investments in '21. They continue to in 2022. And therefore that's going to help us accelerate growth. And as Mark said, we feel very confident about the profitability of our base business and oh, by the way, what I said in my introductory remarks is we do not believe COVID is going to entirely go away. It can be part of -- a permanent part of our portfolio. So you should assume there is some COVID testing in '23 as well. We will continue to role with our PCR testing, and we believe there is a growing role for serology particularly related to our ability to be able to provide some insight around the protection that individuals have in their bodies and we're going to have more on that to come but you put it together and we believe the prospects for '23 and beyond, are quite right. So thank you.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Ricky, I would add one other thing and that despite Mark stated the base business has recovered in 2019 levels, there is still evidence that suggests in terms of a headwind, and the still pent-up demand for routine clinical care. If you look at the studies around HIV infection rate, Hepatitis-B infection rate, the data still indicates that there was a lack of routine clinical care during this pandemic. And we do think that should provide some headwinds, so in the later part of this year and next year.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question?

Operator

And the next question is going to be from Brian Tanquilut of Jefferies. Your line is open.

Brian Tanquilut
Analyst at Jefferies Financial Group

Hey. Good morning, guys and congratulations all around. I guess a follow-up to that last answer that you gave. So as we think about COVID becoming more endemic rather than what it is today, is it probably more correct to think of this opportunity, or this part of your business is something like, say the flu, the flu test where some of it or most of it is point of care, and then a big small chunk of it is, over to you guys? And then how should we be thinking about the economics if that was the case?

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. So, let me start and then I probably will round it out, I'm sure. So this isn't going away anytime soon. I think all of us believe that we're going to have open in '23 and we're going to provide testing around that and as you know, as you are living with it every day, like the rest of us, somebody has some symptoms you're rolling out COVID. And in many cases, that is a PCR test and that will continue. And so therefore you don't think about just being slow but it's anytime a respiratory illness and it could be a common cold or another respiratory illness. So there'll be a continuation of that going forward and also we keep on highlighting the value of serology with if there is going to be increased role for us to provide insight about how much protection people have from vaccines or from natural immunity. And as we know that's changing over time and people want to have that insight to manage the risk and work with their position on that. So we think there's going to be increased value in that. So we do believe in '23, this is going to be a permanent part of our portfolio. It's hard right now to scale that and older more as we get into '22. But when we think about it, we actually think of it as the digital portion of our product line that we didn't have before the pandemic. So we actually find it a bit -- it's was helpful to achieve the value we think we have. And then, as Jim said, base business continues to be really strong share. We cross the growth of '19 sooner in '21, we're entering 2022 with great momentum. Our growth prospects there continued to be ones that we continue to work. So that should continue to be a good opportunity for us. So we're feeling that fits together well and programs going to products provide more fuel for us to make these investments in our base business that help us in '23. So we -- yes, we're focused on -- with cost our hope -- we only make these investments if in fact we expect to get the returns and you will see those returns, both in '22, but also in '23 and beyond. So Mark, is there anything you'd like to add to that?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, I think you explained, it's a great question and we can't predict with any certainty, what's going to happen. I think the two unknowns are how comfortable will physicians be with taking the specimen favorable themselves in the office going forward and may be it will be very comfortable with there with the flu where they view, it will be like no, I'd rather, I'd rather not handle that, I'd rather not do that point of care tests and all the risks that come with that. I'd rather just send it to a lab. But then the other one really importantly is the economics. So the payers are going to have a lot of influence on whether this is done. Now, yes, point of care testing arguably some people do it for faster turnaround times, but a lot of it is done because they make money off of it. So depending on what the payers side around point of care reimbursement that will have a larger influence on how much of this work comes to us and how much of the savings in the office.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

And then let me just add and ask Jim to comment on that is if you look at our volumes, they are impressive. We've had a challenge this year because it -- because of the inflection price and therefore not our -- our ability to not to be able to deliver our pooling, which has more capacity and lower costs, but I will come back to the effective rates drop, but as we go forward with this, we start to see this becoming more of an epidemic and less of a pandemic, then there is a lot of players in this marketplace and Jim and his team are entirely focused on what we have for sure today and what we can do going forward to gain some share going forward. So when you think about the opportunity, and if you look at that marketing, you think about Quest Diagnostics, you think about the dynamics in the short run, where there has been some opportunistic players. We're not opportunistic. This is going to be part of a permanent -- a permanent part of our portfolio and therefore we also are pushing hard and making sure that we get what we believe which an effort share in the short term, but also in the long term, we think there might be an opportunity as well to pick up some share. Jim, ou'd like to add to that?

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Yeah. What we did by there is a flat surge is we had a series of 10 default partners that we referred work when we couldn't handle the volume, especially during peak times during the work and at least 50% of those partners had that knack for business and decided they just need lot of re-rebrand capacity. So while there may be the physical capacity out there, some of that physical capacity, especially on the PCR top PCR side got return to the clinical kind of work at those firms we're doing, other molecular work. So that is I think advantages us in the future and if there is another surge.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question?

Operator

And the next question is coming from Pito Chickering of Deutsche Bank. Your line is open.

Pito Chickering
Analyst at Deutsche Bank Aktiengesellschaft

Hey. Good morning, guys. Thanks for taking my questions. Steve, and Mark, it's been a pleasure working with the you over the years and congrats to you, Jim on this promotion.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Thank you.

Pito Chickering
Analyst at Deutsche Bank Aktiengesellschaft

A lot of questions are around the space business. So let me ask it in a different way. I believe you generally blessed sort of an $850 dollar EPS range for 2023 with limited COVID earnings. Can you talk about EBIT margins in 2023 versus the 17% range seen in 2019 without COVID. I sort of believes are within that guidance range you're implying essentially flat margins with Invigorate offsetting the inflationary pressures. Is that just the right takeaway that we should be leading today's call with?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah. So we intentionally don't really targeted or comment on margins because we believe value creation can come at different levels of margin then we've talked about specifically our PLS where it's great growth. Great return on invested capital and those are the two biggest correlators to shareholder value creation. But they come out of lower margin. So we don't worry about margin, Pito, per se. So but I don't see others do. And so, to answer your question, there is a pretty broad range you know obviously one year less than over multiple years when you put a CAGR with a couple of hundred basis points differential on the top line and bottom line. So there's a lot of different combinations. So what I would say is your EPS number that you mentioned is not unreasonable. And you can trigger out the revenue based on what we said at Investor Day and then what we're guiding to this year in terms of the base business and yes, at this point we're not counting on COVID to be significantly larger than maybe a flu business or something like that, but certainly we don't know. And there is a chance that it could be larger than that. And that will be determined over the next 12 months or so. So that's about the strongest color I can give you right now. Its back to what we said, if you really good about our base business going forward, we're going to back to that growth level and I want to remind everybody that when we grow organically, the dropdown is much higher than that 17% or the 19.5% that we delivered in Q4 and so on. It drops down at a level 50% or more depending if it's an existing customer where we're expanding the menu or it's a new customer, where we do have to invest a little, maybe in logistics and in IT for the interfaces but growth brings with it margin expansion in addition to invigorate, and that's why we're confident we can grow earnings faster than the top line from that period forward.

Pito Chickering
Analyst at Deutsche Bank Aktiengesellschaft

Okay. So just to sort of ask the question, just a different way, not in the margin side, can you add this sort of about 2023 EBIT versus 2018 sort of cleaner, non-COVID numbers we should be modeling a sort of a low teens EBIT increase in '23 relative to 2019.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah, I think you can -- yeah, I mean you can do the math. Yeah, I mean what we said you know about earnings per share, it gives you -- what we -- Mark just said, what we've said is we've always provided our outlook and guidance rather than earnings per share, because we do have a mix of business and we do have some lower-margin business that might be a good value-creating opportunity for us. We're going to go after it like a PLS and so I think the best guidance would be EPS, there will be expansion of EPS over time. Basically, if you will, for these changes from the last 2 years. And then, Mark, has reiterated our belief that our base business will fuel good opportunities for us to continue to deliver against that in all by the way as we continue to gain share variable gross margin is quite good and as I said. We also believe there is going to be some COVID in '23 and it's hard to size it right now, but it's not going to go away anytime soon.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, the other thing, Pito, is you know, I mean, I mean you know I'm not in any position to provide guidance in 2023. So that's why we're focusing every one of the base business. However, when you think about what can happen, COVID to be larger. We don't know and we're not counting at this point and then we did mention we've got a -- we expect to have $1 billion cash this year. So between our opportunities in quite a bit of M&A and we'll see or do you share repurchases those also aren't specifically contemplated so that's why like locking down to a specific number is really difficult and probably not productive. So I would point you to what we said at Investor Day and kind of assuming that that's reasonable if these things don't play out significantly differently from our current view of what 2023 might bring.

Pito Chickering
Analyst at Deutsche Bank Aktiengesellschaft

Great. Thanks a lot, guys.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question.

Operator

The next question is coming from Matt Larew of William Blair. Your line is open.

Matt Larew
Analyst at William Blair

Hi, good morning. The 3% Invigorate target has been aided in the recent years as we've consolidated a volume on your labs and consolidated the one immunoassay platform. I'm curious, what are the keys going forward here to keep driving those gains and then maybe the second piece on a cost would be separate from some of the extra cost you've called out today related to COVID. Clearly you've built up some infrastructure both personnel and instrumentation for covered and just curious how much of that do you think that goes away as COVID moves to an endemic, perhaps, you need less actually.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Great, thanks for the questions. Starting in terms of June to the actual months ahead. We've been working on operational excellence for over a decade and it is the economy institutionalized in our company culture, is embedded in how we do things and it is a platform for now we're going to continue to grow. So your comment is around costs, and we don't talk about cost. We talk about productivity because there's a lot of aspects of what we do around Invigorate and some it actully helps the top lines on that. It helps getting more output with less labor and you have some help as become more efficient by less input from some of the materials that we use. So we looked at that, and we continue to be bullish on our prospects, we believe that it is the ingredients for us to deliver great value that is when we do this we improve our quality, our service gets better, it all by the way, we become more and more productive to be able to make investments to fuel the growth that all fits together. Yeah, and when we talk about business and we've talked about at Investor Day, we see it. An enormous opportunity for us to continue to digitize and innovate in operational excellence. And so some of you have had the opportunity to through our latest lab of the future and that's our new facilities -- facility in Clifton, New Jersey and sometimes if you come in, you'll see what we've done, we would take some of the learnings out of Marlborough facility up in the Boston area. We brought that down to the Clifton, and we've built on that also is the advantages of some consolidation with some of our new platforms but Jim and team are now taking that and thinking about what's next. Okay. So we think a lot of innovation in our space. The answer's is innovation in terms of testing. And as far as those not to give information services. But we equally think there's a lot of innovation and opportunity for us to move forward. So we continue to invest and we talk about investments and in fact way to use the cash. As you motice, we've been about $400 million a year into our capital budget, which is investments and frankly a lot of our innovation that allow us the fuel as the productivity gains. So Jim, add to that, please.

James E. Davis
Executive Vice President, General Diagnostics at Quest Diagnostics

Yeah, I think Steve touched on the three key things, automation, use of artificial intelligence, and continued digitization of so many of our profits. So Marlborough and Clifton are terrific examples, and that's where you go. They're all friendly laboratories. You got 20 plus other laboratories in our network and there is opportunities in every one of those laboratories without building new greenfield sites to continue that automation churning. In particular, in our assessment processing area in what we call our [Indecipherable] handling system. On the artificial intelligence side, you're going to see us move into the biology, psychology, microbiology, we've got some great examples in each of those apartments, today we're deploying artificial intelligence systems that help with the readout of those images and then Steve mentioned continue digitization. Now, beyond the immunoassay platform, where we consolidated the revenue, there is still other opportunities like that in our laboratories, we recently ran a competition in your analysis. So like to new vendors this mix that platform and going out new platforms across all 23 plus laboratories is going to generate a lot of productivity year-over-year. So it is -- as log as we have healthy third-party vendors that continue to innovate, innovation will come to our labs and we'll continue along that 3% productivity journey.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. So we're bullish on prospects to continue to drive productivity, I always react to this as the cost cutting goal. And this is not about cost cutting goal. This is about working smarter, and this has been a key part of our strategy and fueled growth and Jim mentioned some of the areas I think in my introductory comment also digital pathology which will revolutionize our ability to diagnose and treat and to do that more productively and math aside, this week. Jim is going up to another laboratory to look at where we're going to make our next investment this year. So we're confident to invest in the space and we do have a lot more opportunity in front of us, so it's exciting yeah.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, I just wanted to add that, remember, this is not just in the lab. So there's a lot of productivity that's driven upside and specifically I'll give you two example logistics. So we really have an incredible ability to be efficient with logistics and it's continued to improve. So we have some cases where we have empty pickups, where we have some customers that can give us specimen all the time. It's periodic, now we have the ability in technology to not do that empty up. So that's an efficiency. We also get request for what we call staff pickups where, you know, if somebody needs something quick, quick turnaround etc. And so the ability to most get one of our vehicles there has been enhanced for our technology. The other one is in our patient draw centers, we really can increasingly move the administrative burdens off the phlebotomist, allow them to do phlebotomy by getting people to go to our website, put in their insurance information, and everything, and so we're providing a concern, a couple less minutes with each patient's doing administrative work doing phlebotomy we drive up the productivity in our process. So just a couple of examples of productivity gains aren't really cost reductions but enhance our ability to do more with the same resources and drive up our quality and everything else outside of that.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question, please.

Operator

The next question is coming from Tycho Peterson of J. P. Morgan. Your line is open.

Casey Woodring
Analyst at J. P. Morgan

Hi, guys. This is Casey on for Tycho. Congratulations to all.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Good morning.

Casey Woodring
Analyst at J. P. Morgan

So can you maybe talk towards the percentage of COVID testing that was consumer-initiated in 4Q, whether through a cluster or other non-traditional avenues and how do you see that trending in 2022? You mentioned that there are different costs associated with non-traditional avenues of testing. So maybe can you quantify the difference in margin profiles between traditional and non-traditional?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah. So what I can share is if go back to what we said in the prepared remarks, our consumer business was about $70 million last year. Between the base and COVID, we did $2.7 billion of COVID revenues, so you know, the consumer-initiated COVID testing was very small at this point and it's strengthening and again as I said we continue to enhance our website, with both of that order rate and testing and so on. But there's still more to come in terms of enhancing that experience for consumers and making, driving awareness for people. As you know, we're competing with a lot of people who see these stand-up operations in parking lots and so on and so forth with stronger retention. So we're working on making sure that they know we can do this themselves as opposed to going to a doctor or a hospital for this and we expect to get stronger and stronger moving forward as we enhance our overall consumer business through these investments we just mentioned. In terms of the margin profile, it's really not, it's not all that different between the consumer and consumer can have different ways, they can come to our patient center and have it done there. We do have home collection kits where they can be sent to their home. So a little different structure, but not materially different in profitability.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, next question?

Operator

And the next question is coming from Derrick Brown of Bank of America. Your line is open.

Derrick Brown
Analyst at Bank of America

Hey, great. Thank you for squeezing me in. And I'll just make this quick. Can we talk a little bit about sort of like the real PAMA outlook. And so you would assume $80 million again comes back in '23. I mean, what are the chances this actually does get resolved and the lobbying efforts pay off. Is the current administration a little bit more -- and Congress a little bit more willing to listen to this and go ahead? I mean there's some chance that it gets that there's actually some reversion just given what happened. Thanks.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah. Before Steve addresses that, I just want to remind everybody that $80 million was built into our long-term outlook. We just assumed that would happen this year. So again, although the year on year get to us incrementally in comparison in the long-term outlook, it was assumed that we would get that in 2022. So it's already built that.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yeah. So thanks for the question, and we said we were thankful that it was delayed again but one year offset as Mark indicated to '23, we think that's good for us because it will gain time this year to keep on working on a permit from Congress, and we have been very active working with Congress last year, and as you know Congress was very busy with the infrastructure build and other business and therefore we are fortunate enough to get in the postponing of PAMA. But the time this year to keep on working on this to get permitted. We're encouraged by the level of support [Indecipherable] this pandemic has brought front and some of importance of having a strong industry. We're getting strong bipartisan support both from the house and from the senate. We made a proposal of what we think should be changed to improve the data collection process, the CMS of market-based data. We continue to support the notion. Yeah, the philosophy of PAMA that is we should be paid commercial rates, but we believe that CMS, and in parallel with the work we're doing Congress, we continue to have our lawsuit against CMS at the trade association. The judge has heard the arguments. We'll see if we get some indication of a decision on that or to call that, but that's still in the works as well. So our work right now this year is to push for a permanent fix to PAMA and we're better positioned now because the pandemic then before the pandemic, because of the strikes this industry here in total awareness and appreciation of what we've done and the need for a strong laboratory industry going forward.

Shawn Bevec
Vice President, Investor Relations at Quest Diagnostics

Operator, last question, please.

Operator

And our last question is coming from Eric Coldwell of Baird. Your line is open.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Hey, Eric.

Eric Coldwell
Analyst at Robert W. Baird

Hey, good morning. Thank you. Masterful job clearing up some of the overriding concerns on core model today.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Yes.

Eric Coldwell
Analyst at Robert W. Baird

So, thank you. When you went through your list of things that don't repeat or go down significantly as COVID incremental cost over time staffing challenges, etc. go away, you mentioned bonuses and I think it was the one number in the list of call-outs that I didn't hear you quantify. I'm curious if we could get the incremental bonus due to the COVID upside profitability in '21. How you think that bonus will normalize, whether it's '22 or '23. And then my follow-up, I'll store it in here. I was hoping we could get average weighted reimbursement in the fourth quarter. I know you said it would be relatively similar through the PHE, but if you could give us a little more specificity on where AWR came out in 4Q on COVID PCR testing that would be helpful. Thanks.

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Sure. So let me start with that one because I think there were some questions around maybe for their turnaround times suffered and we didn't get the $25 fee that comes with some of the -- if the government payers, couple of commercial fares. Actually, not really. AWR in Q4 was absolutely similar to what it has been in the previous quarters and our turnaround time performance was outstanding. We did in January when research came, we did a little bit -- we did have a little bit of a hit to our turnaround time, but obviously that's all contemplated in the guidance that we just provided and everything. It wasn't a huge amount. When you -- back to the earlier question when we look at the bonuses, most of it is really our 50,000 employees, so people think about bonuses of the senior management. Most of the cost is, really we pay 3% bonus to even our wage workers and then obviously we have other staff members that higher targets and every year we budget for call one X whatever that target is. So for most of the people it'd be 3%. And based on performance, and we feel we've had reasonably stretch performance as well as historically we have not paid significantly above 1x and we've had a number of years where it's below 1x. But the COVID unpredictability in the surge in revenues, you know enabled us to pay our employees significant bonuses in 2020 and again in 2021. And so if you look at -- without going into specific, we've shared a number in the past for $3 billion wage. That's gone up in the last couple of years as we've grown the company. So you can kind of on the floor, say 3% obviously a little higher because there's people and higher bonus, that's about 1x and then we're paying a bonus that's substantially higher than that in 2021 like we did in 2020. The other thing is we did pay out a hundred dollar payment to the majority of our employees to compensate them for COVID expenses. In 2020 we adjusted it out of our adjusted earnings because we were seeing COVID as temporal and extraordinary. But once you get to your second time doing it, even though I think, still think it's extraordinary, we just decided not to adjust it out. So we did have over a $20 million payment late in the year, $500 to our wage employment, some of our lower compensated professionals as well. So those are a couple of things that would go away and not be repeated unless somehow we had another surprising COVID year in 2022 like we had in '20 or '21.

Eric Coldwell
Analyst at Robert W. Baird

Great, great response. I'm not sure I'm smart enough to do 1x, 3% plus and then significant increases. There's any chance you could frame that as incremental $50 million incremental $100 million? Just directionally, could we get a little closer?

Mark Guinan
Executive Vice President and Chief Financial Officer at Quest Diagnostics

Yeah, let's say, it's less than $100 million, but substantially more than $50 million.

Eric Coldwell
Analyst at Robert W. Baird

Okay, that's about what I thought. Okay, thank you very much, guys. Congrats, everyone.

Stephen Rusckowski
Chairman, Chief Executive Officer and President at Quest Diagnostics

Well, thanks. It's been a good session with you all. Thanks for all the great questions and again, thanks for joining the call today, and we appreciate your support and you guys have a great day.

Operator

[Operator Closing Remarks] A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at 1800-839-9317 for domestic callers or 203-369-3605 for international callers. Telephone replays will be available for approximately 10:30 AM Eastern Time on February 3rd until midnight Eastern Time, February 17, 2022. Goodbye.

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