Labcorp’s buying spree is starting to yield results, but future performance may be affected by policy changes
Published Feb. 20, 2024
By Hopkins Medtech
Labcorp (stock code: LH.N) has announced its Q3 2023 financial report (ending on September 30, 2023), with Q3 revenue of $3.06 billion, a 6.6% increase compared to the same period last year ($2.87 billion), driven by a 10.1% growth in the company’s core business.
The Q3 revenue for the diagnostic business grew by 6%, reaching $2.34 billion, compared to $2.21 billion in the same period last year. While Labcorp’s organic revenue grew by 3%, the COVID-19 testing business decreased by 8% (with testing volume down by 5%), while the core testing business grew by 12%. The total core testing revenue increased by 16% year-on-year (with a 30% increase in testing volume), and Ascension Labs, which Labcorp manages, contributed about 6% of the core business growth.
Over the past year, LabCorp has been actively acquiring other companies. Ascension was acquired by Labcorp for $400 million last year. Since May of this year, Labcorp has acquired outreach laboratory assets from Providence Health and Services, Legacy Health, Tufts Medicine, and Baystate Health.
Regarding Labcorp’s Laboratory Developed Test (LDT) business, CEO Adam Schechter stated that by revenue, LDT accounts for less than 10% of Labcorp’s testing business, and by testing volume, it’s less than 5%.
As one of the largest labs in the United States, Labcorp is open to FDA regulations of LDTs and sees it as a potential competitive advantage. Schechter added, “If it’s done fairly, meaning that all LDTs have to do the same thing in small labs, large labs, and everywhere, and as long as the FDA can process these applications quickly so that people can get new innovative tests as they do today, we believe it has minimal financial impact on us.”
However, Schechter also expressed disappointment about the VALID Act not passing last year.
Labcorp also mentioned that the Protecting Access to Medicare Care Act (PAMA), which plans to reduce the prices of laboratory tests, is set to take effect next year, resulting in an approximately $80 million negative impact on the company’s revenue. The law was signed by former President Obama in 2014 and aims to determine Medicare payment rates for tests nationwide based on data from payments made by commercial insurance. This law faced strong opposition from the clinical laboratory industry (especially the American Clinical Laboratory Association (ACLA) and the College of American Pathologists (CAP)) as it would reduce the income of clinical laboratories. Now, organizations including Labcorp are calling on Congress to pass the Saving Access to Laboratory Services Act (SALSA) to offset the impact of PAMA on these labs. Schechter mentioned that if SALSA doesn’t pass, Labcorp is also exploring the possibility of delaying the implementation of PAMA for another year.
