Quest Diagnostics Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 21, 2022

Key Takeaways

  • Raised full-year 2022 guidance after reporting strong base business growth of over 6% in Q1, excluding COVID-19 testing.
  • COVID-19 testing revenues in Q1 were approximately $600 million, down 28% year-over-year, with PCR volumes peaking in January and stabilizing around 30,000 tests per day into 2023.
  • Investments in advanced diagnostics—including oncology, hereditary genetics, genomic sequencing and pharma services—have accelerated growth by several hundred basis points, targeting an 8% CAGR earlier than the original 2024 goal.
  • The direct-to-consumer testing business more than doubled revenues in Q1 versus a year ago, driven by both COVID and base testing demand, with a revamped digital experience launching later this year.
  • About 30% of health plan revenues are now tied to value-based elements such as patient outcomes and shared savings, with a goal to increase this to 50% over the next few years to gain share and deepen payer alignment.
AI Generated. May Contain Errors.
Earnings Conference Call
Quest Diagnostics Q1 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

Welcome to the Quest Diagnostics First Quarter 2022 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question and answer session that will follow, are copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. Now I'd like to

Speaker 1

turn the conference over to

Operator

Sean Bevig, Vice President of Investor Relations for Quest Conference. Go ahead, please.

Speaker 2

Thank you, and good morning. I'm joined by Steve Ruskowske, our Chairman, Chief Executive Officer and President Jim Davis, CEO of Lex and Mark Guinan, our Chief Financial Officer. During this call, we may make forward looking statements that will discuss non GAAP measures.

Speaker 3

We provide a reconciliation

Speaker 2

of non GAAP measures to comparable GAAP measures in the tables to

Speaker 1

our earnings

Speaker 2

press release. Actual results may differ materially from those projected. Risks and uncertainties, including the impact of the COVID-nineteen 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 ks and subsequently filed quarterly reports on Form 10 Q And current reports on Form 8 ks. The company continues to believe that the impact of the COVID-nineteen pandemic on future operating results, Cash flows and or its financial condition will be primarily driven by the pandemic's severity and duration health care insurer, government and client payer reimbursement COVID-nineteen molecular tests the pandemic's impact on the U. S.

Speaker 2

Health care system and U. S. 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 base business, excluding COVID-nineteen 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 Our compound annual growth rates.

Speaker 2

Finally, revenue growth rates from acquisitions will be measured against our base business. Now, here is Steve Raskowski.

Speaker 4

Thanks, Sean, and thanks, everyone, for joining us today. Well, we're off to a good start in 2022. We drove strong year over year growth in our base business, which excludes COVID-nineteen testing. COVID-nineteen volumes remained strong early in the quarter and decreased in February March, in line with the market. We continue to make investments to further accelerate growth in our base business and our efforts to improve productivity are helping us to offset inflationary pressures.

Speaker 4

So based on the strength of our business, we're raising our 2022 guidance. This morning, I'll discuss our performance for the Q1 of 2022, and then Mark will provide more detail on the financial results And talk about our updated financial outlook for 2022. But first, I'd like to ask Jim Davis to give us an update on our leadership transition. Jim?

Speaker 5

Yes. Thank you, Steve. We are making very good progress on the transition. Yesterday, we announced a series of organizational changes First, Kathy Gordy is the named Senior Vice President of the Regional Businesses. Kathy has deep knowledge of our business gained through 3 decades of leadership at Quest.

Speaker 5

She will oversee the regional and enterprise operations, the commercial organization and marketing. She will also be responsible for driving operational excellence, including program drive, our company's quality and productivity initiative. Next, Cary Eglinton Manor is taking on an expanded role as Senior Vice President, Advanced and General Diagnostics Clinical Solutions. For more than 5 years, Carey has been responsible for bringing innovative solutions to the market through Quest's clinical franchises. Before joining Quest, Terry had nearly 2 decades of leadership experience in healthcare and medical technology.

Speaker 5

Patrick Plooman, who had led our West region and has been with West Diagnostics for more than 9 years, is named Senior Vice President, Diagnostic Services, which is a portfolio of data driven analytics and services businesses, Which enables employers, providers, pharma companies and others to deliver health care more effectively and efficiently. This portfolio includes Employer Population Health, Employer Solutions, ExamOne, Healthcare Analytics Solutions And Quest Health Connect. And before joining Quest, Aptrek had over 20 years of leadership experience in the biotech and molecular diagnostics Industries. Mark Delaney has joined Quest as Senior Vice President and Chief Commercial Officer. Mark has responsibility for the commercial team, Including sales and sales operations.

Speaker 5

Previously, he held senior sales and marketing leadership roles over his 30 year career at GE Healthcare And finally, Richard Adams has joined Quest as Vice President and General Manager of our consumer initiated testing business, Richard has 2 decades of varied leadership experience in e commerce, digital marketing and customer experience and will lead our rapidly growing direct to consumer testing business. These appointments demonstrate the depth and strength of our management team, and we're really excited about the leadership and expertise that both Mark and Richard Adams will bring to us. Additionally, we're making very good progress on our CFO selection process and are on track to name a leader in the next several months. The management transition is going very well and the changes we've announced yesterday are an important step in positioning us for the future. Steve, I'll now turn it back

Speaker 4

to you. Thanks, gentlemen. I agree the transition is going well. Now turning to our results. So our base business continued its strong recovery, up more than 6% from the prior year.

Speaker 4

Total revenues were $2,600,000,000 Earnings per share was $2.92 on a reported basis and $3.22 on an adjusted basis. Cash provided by operations was $480,000,000 COVID-nineteen testing revenues were approximately $600,000,000 in the Q1, and that's down approximately 20 8% from 2021. Nearly 60% of the COVID-nineteen revenues came from the Omicron peak in January. We project continued demand for PCR testing through the end of the year and into 2023, albeit at lower levels. The public health emergency was extended into July, maintaining our current level of reimbursement.

Speaker 4

And based on these factors, we've raised our COVID-nineteen revenue guidance for the full year 2022 to between $850,000,000 Turning to our base business. In the Q1, we continued to make progress Executing our 2 point strategy to accelerate growth and drive operational excellence. So here are some highlights from the prior. We continue to make inroads with our health plans, gaining share and increasing revenues faster than the market. Our health plan revenues without COVID-nineteen grew faster than our overall base business did in the quarter.

Speaker 4

We also deepened relationships with payers through value based contracting. We currently have about 30% Our health plan revenues are tied to value based elements. These include patient health outcomes, quality or shared savings. We think we could grow this to about 50% over the next few years, and we believe these value based contracts are achieving better alignment with health plans, which we believe will allow us to gain share. We're also working with our Hospital health system leaders to help them execute their lab strategy.

Speaker 4

Our large partnerships of Hackensack Meridian Health in New Jersey, Memorial Hermann in Texas and those with Community Health Network and Ascension St. Vincent's in Indiana are performing well. Your hospitals look to us for their help with their laboratory design, staffing and management, and we can enable them to monetize outreach lab assets We have continued to make important investments to strengthen Our advanced diagnostics capabilities and are already seeing results. We continue to make investments to accelerate growth Oncology, hematology, hereditary genetics, genomic sequencing services and pharma services. Since we've ramped up our investments in our Advanced Diagnostics portfolio, we have already accelerated growth by several 100 basis points and expect to deliver the 8% growth earlier than 2024, Which we committed to at our 2021 Investor Day.

Speaker 4

We remain excited about the opportunities we see in the direct Consumer testing market. As you know, we're ramping up investments in our consumer business and it's having an impact. In the quarter, our direct to consumer revenues more than $1 compared to the prior year, driven by strong growth in both our COVID-nineteen testing As well as our base business testing. We're seeing continued solid demand for test like comprehensive metabolic panels And complete blood counts. Also, our new and improved digital experience is on track to launch later this year.

Speaker 4

Finally, we've been expanding our diagnostic services portfolio. We are collaborating with a small digital imaging software firm To deliver diabetic retinal imaging services through designated Quest Diagnostic Patient Service Centers across the United States. This will aid in the screening of patients as part of a diabetes management program. The second part of our Strategy is to drive operational excellence. We remain focused on improving our operational quality, Service and costs, thereby drive your productivity gains.

Speaker 4

We're not immune to the current inflationary environment, While we're tightly managing our operations and are expecting another good year of invigorating savings and productivity improvements to help offset these pressures. So by way of example, our procurement team continues to work with our strategic suppliers to mitigate potential price increases and improved productivities through our long term relationships. Also to date, the team has effectively managed Challenges in our global supply chain. We also look to our suppliers to deliver innovation that will help us lower overall cost of testing and improve quality. The most recent example is the rollout of our new Euronews platform That is being deployed across our laboratory network.

Speaker 4

Our new lab in Clifton, New Jersey has been operational for about a year And we're seeing incremental productivity gains from the investments we've made in automation and artificial intelligence. Our new schedule at check-in initiative encourages patients to make appointments, allowing us to better manage demand And phlebotomy productivity while enhancing the patient experience. The system has been successfully deployed to over 700 Patient Service Centers. Our continuing investment in operations is producing results, And we are well on our way to achieving our targeted productivity gains of 3% of our cost structure in 2022. Now Mark will provide more details on our performance and share more insights on our updated guidance for the remainder of 2022.

Speaker 4

Mark?

Speaker 1

Thanks, Steve. In the Q1, consolidated revenues were $2,610,000,000 down 4% versus the prior year. Space business revenues grew 6.3 percent to more than $2,000,000,000 while COVID-nineteen testing revenues declined 27.6 percent

Speaker 4

to approximately

Speaker 1

$600,000,000 Revenues for Diagnostic Information Services declined 3.9% compared to the prior year. The decline reflected lower revenue from COVID-nineteen testing services versus the Q1 of 2021, partially offset by strong growth in our base testing revenue. Total volume measured by the number of requisitions Increased 1.3% versus the prior year and was roughly flat on an organic basis. Total base testing volumes increased more than 6% versus the prior year. Excluding acquisitions, Total base testing volumes grew nearly 5%.

Speaker 1

We experienced some modest softening of base testing volumes in January During the peak of the Omicron surge, the volumes rebounded in February March. COVID-nineteen testing volumes surged during the spread of Omnicom variant during the winter, and volumes peaked in January but declined through the month of February and into March. Together with our JV partners, Senora Quest, we resulted approximately 7,200,000 molecular tests. Quest alone resulted in roughly 6,300,000 molecular tests, down approximately 2,000,000 tests And 1,000,000 tests versus the prior year and Q4, respectively. We also resulted in nearly 450,000 serology tests in the Q1.

Speaker 1

Our COVID-nineteen molecular volumes have generally stabilized at an average of roughly 30,000 tests per day Over the last 4 weeks, excluding Sonora Quest. Revenue per requisition declined 5.2% versus the prior year, Driven primarily by lower COVID-nineteen molecular volume. Base business revenue per rep was up modestly. Importantly, we continue to see an improving price environment. Unit price reimbursement pressure was less than 100 basis points in the quarter.

Speaker 1

Reported operating income in the Q1 was $513,000,000 or 19.7 percent of revenues compared to $660,000,000 or 24.3 percent of revenues last year. On an adjusted basis, Operating income was $554,000,000 or 21.2 percent of revenues compared to $708,000,000 or 26% of revenues last year. The year over year decline in adjusted operating income is primarily related to lower COVID-nineteen testing volume, A higher portion of COVID-nineteen molecular testing volume from nontraditional channels, which carry additional expenses and logistics costs Investments to accelerate growth in our base business and lower average reimbursements for COVID-nineteen molecular tests. These highlights were partially offset by strong growth in our base business. As many of you have heard, The Health Resources and Services Administration, or HRSA, stopped accepting claims to pass and treat uninsured patients on March 22 Due to insufficient funding, HRSA runs the program to provide funding for COVID-nineteen testing, vaccination and treatment for uninsured patients.

Speaker 1

Approximately 14% of our COVID-nineteen molecular testing volume has come from uninsured patients, which is much higher than the 1% to 2% we typically see in our base business. As a result, we were unable to bill HRSA Over $20,000,000 in COVID-nineteen testing work that was performed just prior to the March 23 HRSA cut off date. Moving forward, we are now filling uninsured patients for COVID-nineteen testing directly upfront. As a result, we've seen a decline in our uninsured COVID-nineteen molecular testing volumes in late March and into April, And this is reflected in trends I shared earlier. Reported EPS was $2.92 in the quarter compared to 3.4 $6 a year ago.

Speaker 1

Adjusted EPS was $3.22 compared to $3.76 last year. Cash provided by operations was $480,000,000 in Q1 versus $731,000,000 in the prior year period, And we repurchased $350,000,000 in stock during the Q1. Now turning to our updated guidance. Revenues are now expected to be between $9,200,000,000 $9,500,000,000 a decline of approximately 12% to 15% versus the prior year. Base business revenues are expected to be between $8,350,000,000 $8,500,000,000 an increase of approximately 4% to 6%.

Speaker 1

COVID-nineteen testing revenues are expected to be between $850,000,000 $1,000,000,000 a decline of approximately 64% to 9%. Reported EPS is expected to be in a range of $7.88 $8.38 And adjusted EPS to be in the range of $9.9.50 Cash provided by operations is expected to be at least $1,600,000,000 and capital expenditures are expected to be approximately 400,000,000 Before concluding, I'll touch on some assumptions embedded in our updated 2022 guidance as well as some additional considerations. Our guidance assumes COVID-nineteen molecular volumes to average approximately 10000 to 20000 tests per day for the rest of the year. This reflects modest continued declines in Q2 from the roughly 30,000 tests per day we are seeing in April And some degree of stabilization during the second half of the year. As we look toward 2023, Our expectation for COVID-nineteen molecular and serology testing volumes assumes that the COVID-nineteen testing run rates in the second half of twenty twenty two, continues into next year.

Speaker 1

Last week, the public health emergency was Again extended another 90 days through mid July. We assume average reimbursement for COVID-nineteen molecular testing to hold relatively steady Through this period, while the public health emergency could renew beyond July, additional extensions are not captured in our guidance. We remain prepared for additional future surges, collecting COVID-nineteen testing volume from a range of customers. While the PHE is in effect, we continue to incur incremental costs from nontraditional channels for supplies, special logistics routes And channel expenses for this volume, which can represent roughly $30 in incremental cost per test. Therefore, you should not assume the higher reimbursement The PHE extension drops right to the bottom line.

Speaker 1

As Steve noted earlier, we're already seeing some returns in our investments to accelerate growth, Particularly in the areas of advanced diagnostics and direct to consumer testing and would expect a margin tailwind on these investments in 2023. As a reminder, we are planning to spend approximately $160,000,000 on these investments this year. We spent approximately $30,000,000 in the Q1 and are looking for these investments to ramp up in Q2 to support the launch of our new consumer site later this year. A portion of these stand up IP costs are temporary, but variable marketing costs will increase following the launch of the new site. We'll also be adding additional headcount this year to support our consumer offering as well as bioinformatics capabilities within advanced diagnostics.

Speaker 1

Finally, we know there's a lot of focus on expectations for 2023. While it's clearly too early to provide specific guidance for next year, Based on everything we know and see today, we expect to deliver top line and earnings consistent with our long term outlook that we provided at our 2021 Investor Day. I'll now turn it back to Steve.

Speaker 4

Thanks, Mark. Well, to summarize, we're off to a good start in 2020 driving strong year over year growth in the base business. We continue to make important investments to accelerate growth, And we are seeing the results. Now based on the strength of our base business, we have raised our outlook for the remainder of the year. Now we'd be happy to take your questions.

Speaker 4

Operator?

Operator

Thank you. We will now open it up to questions. Our first question comes from Ricky Goldwasser from Morgan Stanley. Your line is open. Good morning.

Operator

So really nice job in the quarter managing Costs and improving margins. So how has the performance in Q1 compared to your expectations? And how should we think about The margin expansion opportunity for the rest of the year from 1Q levels, if we look at that as a baseline?

Speaker 1

Yes. Ricky, thanks for the question. As you look at the way the quarter played out, omicron was more severe than we had anticipated, which drove higher COVID revenues, but we also saw the base business impacted by So definitely, in January, as we mentioned, the base business was softer. So relative to our expectations in Q1, more COVID, Less base business. But as we exited the quarter and certainly as we talked about in February March, the base business bounced back to our expectations.

Speaker 1

So while we're very pleased with where we see the base business growth for the year, it would have been even higher had it not been for Omicron. And the margins really were what we were expecting. So we walked through on the last call how some of the margin impact In Q4, it was really temporary around the annual incentive plan and some costs related to some special Things that we needed to do for COVID testing in that quarter, some overtime as we were having a fair amount of absences and So the things that we really saw is temporary. The good news is that once we got the onomipron, those costs generally did go away, And we anticipate further reduction in some of the special expenses related to COVID safety and protection for employees as we continue to advance hopefully And getting into the pandemic and out of the pandemic. So I'd say other than the higher housing revenue and a little lower base in January, Generally, the quarter played out as expected, and that's why we're comfortable raising the bottom and upper end of our guidance at the midpoint.

Speaker 4

Just like to reiterate what Mark said about the base business. Just to underscore that we're pleased with what we saw in Q1. It would have been better if we didn't have the softness that Mark talked about in January. And remind everyone that we posted about 3.3% growth in our base business, which had only about 100 base worth of acquisitions. So the organic growth was around 5.

Speaker 4

Again, if January was stronger, it would have been stronger than that. So we feel good about the start of the year, which gives us confidence for the full year. So Feel good about the start of the year for our base business. That gave us the confidence to raise guidance for the full year beyond COVID. I want

Speaker 1

an additional comment on that. When you look at the compares, the easiest compare on the basis was Q1. So to Steve's point, we could have done even better and would have done better than the 6.3% of January and not been impacted by Omicron. But as we go through the balance of the year, the compares do get a little tougher because a lot of the recovery from the pandemic occurred late in 2020 early in 2021. So the growth going forward is more going to be driven by share And less about utilization and the market recovery.

Operator

So can I just quickly follow-up on that? You've talked about the improvement in Feb and March, but the more difficult comps. So how is demand shaping up in April to date?

Speaker 1

Yes. The business continues to perform at a high level as it was exiting in Q1. So We wouldn't be updating our guidance if we weren't confident that what we saw in terms of the performance early has continued. So we're more focused on overall Growth as opposed to the percentage year over year because obviously the compare makes it complicated. So we're very happy as we get into April and we see The performance of our base businesses, and as we mentioned, COVID has kind of stabilized.

Speaker 1

We're not sure how long that will continue. We certainly took a little bit of a volume hit From the change in HRSA, and because there's been a little bit of a spike, I'd say some of that was Partially offset by the market growing a little bit recently. So that's probably the way you get to a reasonably flat level of COVID testing over the last month. Thank you.

Speaker 3

Operator, next question.

Operator

Our next question comes from Patrick Donnelly from Citi. Your line is open.

Speaker 1

Good morning, Patrick. Hey, good morning. Thank you guys for taking the questions. Maybe just another one on the margins. You touched on it a little bit there in the first question.

Speaker 1

Can you just talk about, I guess, given the ongoing growth investments, Wage inflation, can you just talk about kind of your thoughts as we work our way through this year and into 2023? Obviously, the PHE extension should help on that front In terms of kind of the margin size, again, I guess when we look at the earnings raise, how should we think about the base margin piece again ex that ASP as we work our way through this year and again into 'twenty three.

Speaker 4

Yes. So as Mark indicated in his prepared remarks, there's some Changing dynamics in our business with investments in the second quarter and then plus COVID in the back half of the year. And What we indicated, we will be coming out of the year in the back half with the amount of COVID testing we would expect There's a good level to think about in 'twenty three. And so what we also expect is to continue to get the invested returns We expect in advanced diagnostics and in consumer testing starting in the back half. And again, what Mark said in his prepared remarks, And we believe that investment return will be a tailwind for us in 'twenty three.

Speaker 4

So this is a transitional year with those investments, Transitional year for COVID. And Mark, you'd like to give a little perspective on Q2 and then the back half.

Speaker 1

Yes. And I'll try to answer your questions, Patrick. So on inflation, we talked about building in An extra 100 basis points or so in our wages costs and that was in our original guidance. And through 3.5 months of the year, we haven't seen anything that suggests that wasn't a reasonable assumption. So basically, inflation is about where we were expecting.

Speaker 1

And I'd say On non wage items such as materials and supplies and so on, certainly fuel costs have been bouncing around, but nothing And it's deviated significantly from our critical assumptions coming into the year around inflation. The PHE is significant on Revenue and from a dollar margin perspective, it certainly is helpful. But from a percentage margin perspective, I want to be clear that it's not significantly higher than the post PHE world because those costs go away that Reference, there are more than $30 So, but people are focused on percentage margin. The base is not a big change In terms of what you will see, and I think the important thing is that as the base volume grows, we've always shared that incremental Organic growth in the base business has a very high level of drop through. So the other margin consideration is as we grow as we expect to and as we've signaled in our guidance That will help drive margin expansion.

Speaker 1

And then finally, just a reminder that we are in a much better place in price than we've been historically. And so therefore, a lot of the upgrader derived productivity savings that in the past It will have to pay for inflation, whether inflation is a little bit worse. Certainly, the pricing environment is better. So there's more of that to cover that inflation and also

Speaker 4

So remember, too, as you think about as we transition for the year, And Ricky asked about April.

Speaker 2

We have a high level

Speaker 4

of testing in April going on, and we do Periodically update you on that. And that number we expected in our guidance to come down. And as we indicated, as we come out of 'twenty 2 will be running around 10000 to 15000 tests per day, and we're assuming that the PHE will expire because we know nothing Beyond what we've heard so far, which will end sometime in July. So as you think about that transition and And then think about the investments we're making and thinking about the nice momentum we're building in the base business, it gives you some perspective

Speaker 6

We're going

Speaker 4

to come through the 3 remaining quarters of this year and then guide us to A reasonable, excellent place to be able to deliver what Mark indicated for 2023. Okay. That's helpful. And then just on

Speaker 2

the balance Cash flow obviously has been pretty strong for the past few quarters here. Capital allocation is in focus for investors. Can you just talk about your priorities there? What the M and A pipeline looks like, what the funnel looks like and then maybe compare that to kind of the share repo opportunities?

Speaker 1

Sure. So the our capital priorities haven't changed. We have that commitments for return. Majority of free cash flow, as we've shared, normal times, we get pretty close with the dividend, then we do some share repurchases to offset dilution. Obviously, with the COVID, bolus of cash generation, we've had the ability to deploy more cash.

Speaker 1

We always prefer to do M and A because we've got very high standards around the deals that we execute. So that would always be the preference. But at any given point in time, given our strong cash on the balance sheet and our ability to generate cash, we're not going to sit on it. So the $350,000,000 in the Q1 It's more a reflection of how much cash we had at year end and the fact that we didn't do a transaction in Q1 as opposed to any change in priority. So Steve, would you want to comment on the pipeline?

Speaker 4

Yes, yes. So we feel good about, Again, our commitment of 2% growth through acquisitions. As you know, we've delivered that consistently, and we feel good about our ability to, On a routine basis, deliver the consolidation strategy we've been executing against. We've got a few that we're working on, And we still feel that we're going to be able to get to a number close to that 2% in 2022. So as I said in the Q1, We're lighter than that.

Speaker 4

This is lumpy, but we do expect that we'll be moving on a few In the second quarter and the third quarter, deliver what we expect.

Speaker 1

Great. Thanks. Operator, next question.

Operator

Our next question comes from A. J. Rice from Credit Suisse. Your line is open.

Speaker 2

Good morning, A. J. J.

Speaker 7

Rice:] Hi, everybody. Obviously, value based arrangements are becoming more significant as you described in your prepared remarks. I wondered if we could get you to Step back and talk about a few of the key features of these arrangements and discuss how they allow Quest To do better economically, it sounds like you think you can do better economically under these types of arrangements. And I know you prefer to Pricing being better, we used to always think of managed care pricing as being a 1% to 2% negative headwind each year. Has that dynamic changed?

Speaker 7

Or is it mainly Because of these value based arrangements.

Speaker 4

Yes. So let me start and then I'll ask Mark or Jim to kind of add to this. As we Setting our strategy here, health plan access change is a big opportunity for us, number 1. Number 2 is we do plan on gaining share. And number 3, we are gaining share.

Speaker 4

So our health plan revenues are growing faster than our overall revenues, and we believe growing faster than the market. So we're making progress. So in that regard, the second question is the environment at A. J. Has gotten better.

Speaker 4

Yes. We've indicated in prior calls and prior quarters, and it's proven to be true as we go throughout this year. As we get into renegotiations with We believe we have a stronger position to negotiate, in some cases, modest price increases because we're delivering more and more value. Our quality is improving, service performance is better, and we have an opportunity to help them narrow their network and narrow the number Providers they have with the number of these programs. So it has gotten better.

Speaker 4

We indicated that it's less than 100 basis I'll remind you though, when we talk about price, there's a lot of focus around the plans, but we have price pressures in the hospital business or our client bill business. But at least on the health plan side, it has gotten better and we have gotten modest increases for some of the contract renewals that we've had. In terms of value based contracting, the biggest opportunity we have, which you indicated in the past, is around United. And United is a very Different relationship for us than what we had years ago. It is clearly a relationship that we're working different aspects To be able to pick up share.

Speaker 4

And as part of that, as indicated in my remarks, we do have shared savings And we have opportunities together to do a better job with their membership and their clients. And then beyond United, we have extended that thinking to other parts of our health plan portfolio With other concepts, they're not all identical, but they have similar characteristics in general Where we have better alignment between what they're trying to accomplish and what we're trying to accomplish. And in the end, we're all trying to achieve What's been described as the triple aim, which is better quality, better experience at lower cost, and that's resonating very well in the marketplace. Overall, as you know, this is an entirely focused organization on that, not just the plans, but integrated delivery systems as well. So Mark, you like to add something to

Speaker 1

I think Jim, on the other hand, you want to go?

Speaker 5

Yes. So A. J, first, when we think about value based Care and arrangements, that does not necessarily mean capitated. So as Steve indicated with both UnitedHealthcare and I'd add Anthem, Many of these value based care incentives come to us through performance on leakage agreements where they provide us List of physicians that are using out of next per class and

Speaker 2

when we move that work, there's

Speaker 5

a value base, there's an incentive for Quest. We proactively work with both payers on moving work out of expensive health system laboratories. They proactively give us the list of physicians that are that are using that those labs and we go after it. Finally, we work hand in hand with both of those clients and others On approaching employers and getting employers to see the benefits of steering their employees to independent labs like Quest Diagnostics. When we do enter into these capitated arrangements, I can assure you going forward, We are going to have a much greater say in what we call the clinical pathways that are used by physicians to ensure that Utilization makes sense for the clinical condition that the physician diagnosed.

Speaker 1

Yes. The only thing I'll add, A. J, is There's elements in those contracts that Jim just described. The one I'll add is also we've talked about in the past, when we do an acquisition of Hospital Outreach, Instead of the rates immediately dropping to our rates, there's a step down in a majority of our large contracts right now. So We kind of share the value of moving that work through an acquisition, which aligns our incentives.

Speaker 1

And really, the greatest The value of this is it moves the conversation around away from price being the way we create value and more towards steerage And we it's which Jim talked about and partnering and working together to get connections to work to a lab like us to set a better price, But also there is things that come with it that benefit the patients with physicians. It's our tools and our technology. It's our quality. I mean, you know that in United PLN, it's not about the price. It's really about a couple of dozen metrics around quality and tools and Everything from what is their experience in the patient drop center to how we feed the data to the payer and the frequency and quality.

Speaker 1

So There's a lot beyond price that's turned value in this space, and that's where we've been successful in moving the conversation. And yes, Then within the contracts themselves, there would be shared savings and these other value driven parameters that can get us a better price or more value As we demonstrate to them, we're going to create value for them as well.

Speaker 4

All right, great. Thanks a lot.

Operator

Our next question comes from Pito Chickering from Deutsche Bank. Your line is open.

Speaker 3

Good morning, Pito. Hey, good morning guys. Thanks for taking my questions. Back to the guidance question. Previously, you didn't assume any share repo Besides offsetting dilution, what does your current guidance assume?

Speaker 3

When I went back into net income Guidance from the previous guidance using 124,000,000 diluted shares in the 4th quarter versus the current guidance at 121,000,000 shares Backing into the midpoint of the range in net income, essentially flat despite revenues up $200,000,000 or at the low end. So this calculates into a margin About 10 basis points. So a long way of saying, is margin guidance down today versus previous guidance? And any color on why?

Speaker 1

Yes. At this point, the share repurchases that we've done pretty much offset our equity program. So it's not as if there's a huge decline in waste still based on what we've done. And in terms of going forward, it will be dependent M and A opportunities versus buybacks. So there's no material change in our way so In our guidance relative to what we gave back in February.

Speaker 4

And As you see in our results, we exited Q1 with about $700,000,000 worth of cash, And obviously, we're going to put that to use in a good way. We're looking at acquisitions, as we've talked about, And we'll handle that in due course throughout the remainder of the year.

Speaker 3

I mean just to sort of drill into that, backing into the previous guidance versus Current guidance with the share counts you had before versus current share counts, I guess, a net income of about $1,100,000,000 for both The current guidance versus previous guidance despite revenues going up, is that the right math? Because that would imply margin compression about 10 basis points.

Speaker 1

Yes. So I would not want anyone to take away an implication of margin compression, Pito. And remember that we don't do point estimates. We do ranges. So there's a lot of moving parts, everything from top line mix, clinical mix, You know exactly precisely how much COVID testing we get going forward and share and obviously deployment of cash.

Speaker 1

So that's why

Speaker 5

we give a range.

Speaker 1

So we feel very good about the margins. We would expect that the margins would improve on the base business going forward. Certainly, the COVID elements and everything from the PHE to the amount of volume we have could impact margins as well. I'll give you one If you're looking at net income margin, certainly, some of the JVs where specifically some of our Quest, where They have done a lot of COVID testing. We have no revenue, but we get their earnings contribution from that.

Speaker 1

So there's a lot of things that they kind of skew margins, but I think what people Really want to understand the base business. So what's going to happen going into 2023? We're very comfortable that the base business will be At or above pre pandemic levels and we'll have a larger base business in 2023 with some level of COVID testing And the margin performance that you saw in Q1, we're not expecting it to erode even despite the fact that we did talk about ramping up Some of our CIT investments in Q2. So it's all been contemplated. It's all in that range of guidance.

Speaker 1

And so it's kind of hard to pin down a Specific margin at this point, but it's not bad news.

Speaker 3

Great. Thanks so much.

Operator

Our next question comes from Kevin Caliendo from UBS. Your line is open.

Speaker 1

Good morning, Kevin. Good morning.

Speaker 5

I want to follow-up on

Speaker 8

the guidance question just a little bit. So you beat in the quarter by roughly $0.25 and you raised your COVID Revenues by $150,000,000 or so, which depending on what margin you use could almost equate to that same sort of 0 point 2 $5 Was the guidance range raise related to the Q1 beat? Was it related To the COVID increase, is there an overlap there? How should we think about that?

Speaker 1

So the guidance range was related to the And again, if you look at Q1, as we shared, the base business, Well, it performed extremely well. It didn't do as well as we had expected when we entered the year because of Omicron. So some of the raise in COVID For the year and the performance in Q1 was really offsetting a slightly softer base business. Now the good news is that base business came back. So that softness in the base business was temporary.

Speaker 1

The other dynamic is that we do have The PHE being extended, but we also have this change in HRSA, which is not insignificant. So we mentioned there was over $20,000,000 of lost opportunity to be able to get paid for the uninsured from some work we did in late March. So there's a lot of moving pieces here. And so it's really hard to parse precisely what is driving the raise. It's really our greater confidence in the business for the year in totality with all of those pieces.

Speaker 1

And so again, while a lot of people focus, as they rightly understood, on the midpoint, I'd say just in general, the business is in better shape in total than we would have expected 90 days ago, and that's why we're comfortable raising both the top line and the bottom

Speaker 4

Yes. As we entered the year, what we indicated for COVID, it's around $700,000,000 to $1,000,000,000 And obviously, we're delivering $600,000,000 in the first quarter. We have more certainty around what is left within that initial guidance. Obviously, going into the year, there's a lot of uncertainty what would happen with Alcon, how fast it would decline and how much testing would go on In the back half of the first quarter. So the tightening of the range as it raises it, but as Mark indicated, there's puts and takes of this In terms of the impact on our bottom line, but I'll just reiterate, we feel good about our start with our base business, And we're tracking well for a strong year based on our initial guidance.

Speaker 8

Okay. Just a quick follow-up on the $160,000,000 in investments. You said part of it would be Temporary part of it would be permanent. I think one of the things we're all trying to figure out here is sort of what the base margins look like in a non COVID For COVID, what that is flat year over year or whatever, which seems like we're moving into, what the base margins normalized would look like? So if If we think about how much might linger, if you any help on that, maybe the question would be, what would what do you think base margins look like In 2023, you're exiting when COVID becomes endemic versus where they were in 2019.

Speaker 8

Like Is it possible that those base margins are higher going forward, that you guys have figured out a way to be more productive and so forth?

Speaker 4

I got it. So remember, We're investing $160,000,000 We're investing $160,000,000 because we have a strong business case to get the returns. And what we've indicated, we're ahead of our plan to get the returns in Avance Diagnostics, and we feel bullish about the opportunities to the consumer. And the results on both of those fronts have been good news. And so when we talk about the second quarter, we mentioned that putting in place a new platform.

Speaker 4

Also, we're in a consumer business. We're investing in some marketing to get the growth we expect, and we are getting the results so far, and we'll continue to the results in the back half of the year. What we also said is that as we come out of 'twenty two Into 'twenty three, we expect from Avance Diagnostics and returns we expect from the consumer that the year on year Improvement in those businesses will be tailwinds for our margins in 'twenty three, Okay. So again, we're investing to grow. We're investing to get a return.

Speaker 4

We feel good about getting those returns actually quicker than expected. And next year, the year on year compare related to that 160,000,000 Will be a net tailwind for us in terms of our earnings in 'twenty three. Mark, anything like that? Yes.

Speaker 1

So just a reminder that we shared A view that we could grow our consumer business to $250,000,000 by 2025. And remember, especially if you strip out the COVID testing revenue, This was a business that was small millions not that long ago. So there is significant growth projected in this business, and we're still very, very comfortable And confident we just talked about the performance in this past quarter, and we don't have our new customer experience IT capability that we think is really going to make a difference in terms of the ease and use of that site. So as Steve said, We'll create tailwinds because we'll be investing less relative to the revenue. But in terms of the margin, What I'd say is on the business ex consumer, the margins will be as good or better than you're used to.

Speaker 1

We'll talk about pre pandemic. But we will have a sizable consumer business that is still an investment vote because we're still looking to grow. So the overall enterprise margin, You should not expect to be expanded. The good news is we would expect stronger growth. And if for some reason that consumer business doesn't deliver, then we can turn off the marketing expense.

Speaker 1

So it's not as if we're adding tons of people or infrastructure costs. So we're very confident In our ability to grow that business, we want to invest to optimize that growth for a period of time. It is going to improve its bottom line Next year, relative this year and then certainly, over the years beyond that, we would expect to have a nice healthy Margin on that business as well, and it will be quite sizable.

Speaker 4

And as Mark said, as we go through Thinking about what we indicated at our Investor Day, and we're not going to give you 'twenty three guidance, but what Mark indicated Yes. When we think about 'twenty three, we're still believing we're comfortably in the range we would expect in 'twenty three in terms of EPS And the second half sets us up nicely. And what we've implied in our guidance for the full year implies a setup So we'll be able to deliver what Mark indicated in 'twenty three and the view that we indicated at our Investor Today in spring of 'twenty one. So we're consistent, and we believe we're on track to delivering what we expect and what you would expect In 2022 and 2023.

Speaker 2

Thank you for all that detail.

Operator

Thanks. Our next question comes from Jack Meehan from Wolfe Research. Your line is open.

Speaker 1

Hey, Jack. Hey, Jack.

Speaker 6

Hello. And happy to say still at Nephron Research. So Steve, on 2023, I know still premature to give a specific number, But at the Analyst Day, you talked about 7% to 9% earnings growth kind of off of an $8 number you were gearing us to at that point. Now talking about some tail of COVID here too, can you just like Make sure we're doing the math right. Can we take 8%, grow it, add some COVID on top?

Speaker 6

There's obviously some other moving parts, but is that The right way to think about it or where am I wrong?

Speaker 4

Yes. We're going to refresh all of your memories of what we said at the Investor Day. Mark, take us through that. Yes.

Speaker 1

So at that point, We said $7.40 to $8 and a 7% to 9% CAGR from 2022 and beyond. And then as we got further along past Investor Day, we started to signal that we would expect it to be You're closer to the $8 or in the upper end of the range. And because 2022 has more COVID revenue, I just want to remind everybody, The growth rate for in 'twenty three is going to be below that CAGR, but the absolute number we're saying should still be where you would have Calculated back in March of 2021. So it just happens to be that the pandemic hung around, for a little bit longer. I also mentioned at Investor Day that we did not assume COVID would go away.

Speaker 1

So in that outlook, I had a level kind of a sustained COVID testing, we do expect that COVID testing will be around part of our portfolio and certainly nowhere near the levels of 202021 or even what we're projecting this year, But not insignificant. So I would not take COVID as upside to that. We certainly had some COVID built into that outlook.

Speaker 4

Yes. What we said, remember, this is the spring of 'twenty one. We expected 'twenty two to be able to grow like we indicated both top line and bottom line. Well, we also said, and it continues to this day, we expect that COVID will continue to be part of our Portfolio of tests going forward. So that was 'twenty one thinking about 'twenty two.

Speaker 4

The same is true for 'twenty two going into 'twenty three. So So we're going to come out of 'twenty two with COVID testing. You see the volumes we indicate, which is about $10,000 to $15,000 per day. Obviously, we're assuming right now we're lower price. We will continue to have COVID testing in 'twenty three, and we've always assumed And our outlook going forward for growth on top line and bottom line, there will be COVID testing in our portfolio.

Speaker 4

And frankly, we think it's a good opportunity because if you go through the math, even at lower price points, this is a sizable market Yes. We have a good sized share right now. We think there's dynamics in the marketplace, and we're working on plans to actually gain share in the COVID testing marketplace that Who's going to be with us for the foreseeable future.

Speaker 6

Great. As a follow-up, wanted to ask you about the consumer directed testing. You talked about the growth rate. How much revenue did that area generate in the quarter? And can you also talk about interest beyond COVID?

Speaker 6

Is there any specific areas of menu that you're targeting or you think are resonating and where that investment is getting directed?

Speaker 4

Well, first of all, Josh, we're not going to give you specific numbers for the quarter. What we share with you, it grew nicely double digits on both Based business as well as on COVID. Joe, why don't you talk about the portfolio and what we're seeing broken?

Speaker 1

Yes. So Jack, we've talked

Speaker 5

in the past, There's various segments to this consumer initiated testing business. I'll touch on 2. 1 is We call them watchful warriors, people that have chronic conditions like diabetes, like cancer, but their Insurance company may only pay for, let's just say, 2 A1C tests a year. And these people worry about the disease, and they may come in once a month once a quarter to get So it just makes more sense that they do it through us directly rather than have to go to a physician office, pay an extensive bill just to get an A1C test. So there's a lot of demand for from these types of patients.

Speaker 5

The second is we've talked about Privacy seekers. People who don't want their insurance company to know they're getting tested, they may not want their doctor to know, they may not want their spouse, they may not want their Mother or father, some of this is related to FPD testing. So it's a big segment for people that value privacy. Finally, there's a generation, a much younger generation that may not want to go to the doctor. They don't have a doctor, But they may want to get lab testing done once a year just to check the underlying health of their body.

Speaker 5

And so call it the 20 to 26 year old Segment that they don't have primary care physicians, but they are concerned about their health. And they come in and get these Once a year, comprehensive lab panels done that assess their overall health. There's others there as well, Jack, physical fitness Check hormone levels before marathons and things like that, but those are the primary ones.

Speaker 1

Yes. I'd add to that, Jack, we've talked about this previously. We've moved this, what we call Blueprint for Wellness, which was an offering we gave to employers. It's a battery of diagnostic testing that gives you a diagnostic testing that gives you a good blueprint for how your important leverage, obviously, your glucose and other important metrics. And we're actually offering that now on our consumer testing website, and people really I find that interesting.

Speaker 1

So an opportunity to get a full run of diagnostic testing like people have gotten who had employers that sponsor, including us, we do it for our employee base, And it can be very, very valuable. And then obviously, if there's anything that's out of range, then you go to the doctor instead of going to

Speaker 2

the doctor first to get the script.

Speaker 4

Yes. As Mark said, too, it's a smaller business, particularly on the base business, and that number is growing Strong double digits. And what we said is we're committing to the business meeting of about $250,000,000 in size by 2025. Well, needless to say, with the investment that we're making, the new leadership we brought in that Jim indicated Yes. And really, it's really focused organizational model that we have in place.

Speaker 4

We're getting good traction, And we believe you're going to start to see the acceleration of the revenues we get from it, which should be a net Tailwind for us for our growth overall as we go into 'twenty three and beyond, tracking to that $250,000,000 number in 'twenty five. If you just kind of go through the math, you can see this is going to be accretive to our growth In 'twenty three and 'twenty four, beyond what we've seen so far because the numbers get much more substantial year on year to give us a nice lift And our growth rate going forward.

Speaker 1

Operator, next question.

Operator

Our next question comes from Brian Tanquilut Elib from Jefferies, your line is open.

Speaker 9

Good morning, guys. Good morning. Just one question. Mark, I know you don't give Quarterly guidance and you've given us some color for the guidance for the year. But just any considerations we need to be thinking about as it relates to Q2?

Speaker 9

And then Maybe just on that $30 cost you mentioned that goes away related as COVID volumes go down per test. How quickly does that go away? I'm guessing some of that's payroll and headcount. So just curious like how does that stair step function Progress over the course of the year and in terms of like eliminating that $30 number?

Speaker 1

Yes. So, stats payroll It's actually a fee we pay to a partner, and that relationship that we have is only permissible during the PHE. So there's absolute guarantee that when the PHD goes away, that, that payment goes away. So it's directly 100% Correlated to that, in addition to some other costs I mentioned like logistics and so on and so forth. And obviously, if we stop the relationship To stop the payment, we don't have the logistics cost as well because we're not making those special runs to areas that normally we wouldn't go to pick up specimens.

Speaker 1

So I think you probably have other pieces, Brian, but I'll go through it. So we talked about a level of testing that's We've been averaging about 30,000 here early in the quarter. We talked about a lower level in the second half. So that's one consideration for COVID. You know the PHE is During the full second quarter, certainly, that's much more of a revenue impact and dollar margin versus percentage margin, A change from Q2 to the back half of the year.

Speaker 1

And then most importantly, we're back to growth mode. And every week, every quarter gives us an opportunity to go out and do what we're doing before the pandemic, to Win over more work, flip offices, grow organically, and all of that will benefit the back half relative to Where we were in Q1 and certainly expect to be in Q2. So COVID rents continued to ramp down. The base business continued to grow. PHE is likely to go away as we've said in our guidance, but then also importantly that those incremental costs with the COVID testing will go away with the PHE

Speaker 4

And just to remind you, what we've told you is this $160,000,000 that we're investing, We said we spent about $30,000,000 so far. And what we said is in Q2, we've got some investments we're making, particularly we're releasing a new platform, Okay. So think about that. Some of this is period expense. It's one off, okay?

Speaker 4

But some of this is repeatable that we'll see in the back half of the year. So some headwinds in the 2nd quarter will be with this investment we continue to

Speaker 6

make, we think, in a real

Speaker 4

great No opportunity for us to grow long term, so think about that as well.

Speaker 9

And think

Speaker 4

about the timing of what will happen when throughout the remainder of the year.

Speaker 9

I appreciate that. Thank you, guys.

Operator

Our next question comes from Derik De Bruin from Bank of America. Your line is open.

Speaker 10

Thank you and good morning.

Speaker 1

Good morning. So, I

Speaker 10

want to look, a couple of questions on advanced diagnostic testing. First of all, One of the other public labs that does a lot of oncology testing, talked about weaker volumes So coming out of the pandemic, could you talk about what you're sort of seeing in oncology testing through that market? And are you gaining share there? And then as a follow-up to that, Your other main competitor has been doing a number of acquisitions in things like with the biopsy and some of these other ones. How are sort of you thinking about building out your pipeline for the Advanced market?

Speaker 10

Are you thinking something you're looking for is potential acquisitions to build that area to Hansard or is all natural, Bill. Thank you.

Speaker 4

Yes. Well, absolutely. So we have shared with you Strategically, what we're doing, okay? Last year, we indicated that our business and our definition of Advanced Diagnostics And finally defined around genetics and molecular. And last year, excluding COVID, because that is molecular, It was about $1,300,000,000 in size, number 1.

Speaker 4

Number 2 is what we have done is we have focused on Four areas that I've indicated in my prepared remarks that we're putting the additional investments in. And that investment those investment dollars are Throughout the entire value chain, it's an investment upfront in new tests and in organic invention. It's also in our experience that We work with our physicians and the patients that they serve. And it's also around the services that we have to provide with genetic counseling and And with our sales force to be able to have better reach within the markets that we serve. So it's through the full value chain.

Speaker 4

And what we have been running at historically is about 3% to 4% growth in that business. And what we said in our 'twenty one Investor Day is we're going to accelerate growth, and we're going to get to high single digits. And we indicated today that we're We're making good progress against that, and that number is about 8%, okay? Now in that, majority of the assumption It is for doing that organically with the investment we're making. However, as you know, in the past, we've made some selective acquisitions.

Speaker 4

Quick one, particularly called Blueprint Genetics, which gives us a bioinformatics capability that enhances our capability around genetics. And what we indicated last year is that strategy is working. Those areas of growth, okay, are growing strong double digits. And that's strong double digits in 'twenty one versus 'twenty and also in 'twenty one versus 'nineteen at pre pandemic levels. So we feel our organic strategy of investing is working out.

Speaker 4

And then finally, what I'll share is we continue to look add acquisitions that would make sense to enhance our portfolio. But remember, we've been very disciplined about doing acquisitions. We have very tight criteria for acquisitions where they have to be accretive to our earnings in a reasonable period of time. They have to be accretive to Our belief around earnings opportunities were on ROIC. They have to be accretive to our growth.

Speaker 4

And therefore, when we look at Potentially buying things versus investing or investing ourselves, we're always considering the trade off of how we continue to build value. So that's been our strategy. And our strategy that we put in place is working because we have a schedule, and we feel good about it going forward. Jim, anything you'd like to add to that?

Speaker 5

Yes. Dirk, you've asked just to talk about our oncology performance. And when we think about our oncology business, it's obviously a solid tumor component to that Basic pathology work that then throws off molecular tests when needed. That business is doing well and has recovered from 2019 levels. And then there's a core hematology business, which has always been a real, real strength of Quest Diagnostics, So that business continues to expand.

Speaker 5

So our oncology portfolio is in good shape. You mentioned liquid biopsy. There certainly is a market in what we refer to as the MRD side, that's minimally residual disease side. We're working on an assay. There's also commercially available assays from our suppliers and we're considering In terms of pre cancer or pan cancer screening assays, that's a bit more out there.

Speaker 5

Something we watch, as you know, there's 63, 65 startup companies with the name Liquid Biopsy that received $1,000,000,000 of of venture capital money last year. And we're certainly keeping an eye on the space. And as Steve indicated, if we find one that We saw our criteria. We'll look closely at it.

Operator

Our next question comes from Anne Hynes from Mizuho Securities. Your line is open.

Speaker 4

Good morning, Anne.

Speaker 11

Hi, good morning. So one more margin question. I think the issue is maybe we are overestimating the margins on COVID to back into your base business. And you referred to your partner, which I'm assuming is CVS that you have to pay that $30 fee. Can you tell us what percentage of your test It's CVS.

Speaker 11

So just to make sure that we are estimating just kind of the consolidated margin for COVID correctly.

Speaker 4

Mark, would you give some more color? Yes.

Speaker 1

So we yes, that's not our only partner. So when we talk about non traditional channels, it's It's not limited to one partner. And what I can share is that it grew Before the HRSA change to where it was almost up to half of our volume that was coming From the nontraditional channels and a higher proportion of the nontraditional volume was uninsured. And since the uninsured volumes have dropped off, that proportion has dropped off as well as we go. But It's still significant.

Speaker 1

And I would not want to comment specifically on any partner. And certainly, the one you mentioned is not our only

Speaker 5

Yes. And those the range, the percent of our volume that comes through these retail partners actually varies. During surges, I would say it's less. It reduces because we start to then get a lot of estimates from physician offices, urgent care centers and hospitals. When COVID subsides, then that becomes slightly larger Percentage of our mix.

Speaker 1

Right. So those are surges. We can do less pooling. And we It can take a little bit ahead on the turnaround time, dollars 25 that you've given a lot of the contracts and certainly in CMS' payments. So there's a lot of dynamics That can offset each other.

Speaker 1

And that's why we really want to focus people that we can make a reasonable margin On the CMS reimbursement rate on COVID going forward, and it's not as if the price change will all drop to the bottom line.

Speaker 4

And going back to what's in our numbers and what's space and what's COVID, I'll keep on reiterating. Remember, we took advantage of the opportunity we had in 'twenty and 'twenty one to invest in accelerating growth. And those investments take time. They're ahead of schedule, and that's going to help us next year year on year. So think about that too as it kind of goes through the plan for this year into next.

Operator

Our final question comes from Rachel Bautista from JPMorgan. Your line is open. Hi. Thanks for taking the question.

Speaker 11

So could you just elaborate on the PLS contract momentum that you've been seeing, especially as the hospitals return to normal? How should we think about the cadence of those wins and Revenue contributions for this year.

Speaker 4

Yes. So I mentioned in our prepared remarks 3 that we've announced And our relationships are strong and continuing to demonstrate that we can bring real value to these To remind you all, what it is, is one is, yes, we help them run their labs, and you see 1, you see 1, But they save money, and a lot of hospital systems are struggling. As you know, volumes, yes, in Some cases, that recovery, but the acuity level of patients in the beds are higher and they have fixed reimbursement. And then secondly is there have been inflationary pressure in hospital systems, which has been tough for that to offset. So that's the first piece.

Speaker 4

The second is when we have our relationship, our Advanced Diagnostics business and our overall Sophisticated testing business, which we call reference testing with hospitals, also is an opportunity. So we typically Bringing the larger share of that with hospitals. And then finally, we have an opportunity in some cases to buy their outreach business, which has been nice opportunities for us to build value, Which helps us with the acquisition target, but also helps us because eventually they're accretive because we know how to integrate these quite well. So it's worked, right? Yes.

Speaker 4

And going forward, the funnel continues to build. We have a dedicated team. We've invested in that as well. Jim and I are entirely Engage together, working a large number of these accounts. We personally do a fair amount of travel And spend time with the management team engaged in these opportunities.

Speaker 4

So we do believe it continues to yield us a nice opportunity going forward to continue to accelerate growth. So, Jeff, anything like that?

Speaker 1

I would just say that

Speaker 5

The funnel of opportunities is very strong right now. These contracts take a long time to negotiate. Obviously, inviting in someone to run your health system laboratory during COVID is Is that something health systems are trying to get to do? Now that COVID is subsiding, health system, ICUs and taking care of COVID patients is under control,

Operator

Thank you for participating in the Quest Diagnostics Q1 2022 conference call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics' website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at 800-583 8,095 for domestic callers or 203-369-3815 for international callers. Telephone replays will be available from

Powered by Quartr