Quest Diagnostics Incorporated (DGX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the afternoon session. My name is Lisa Gill. I'm the health care technology and distribution analyst with J.P. Morgan. With us this afternoon, we have Quest Diagnostics. Presenting for Quest is CEO, Steve Rusckowski. After the presentation, we will take questions across the hall in the Borgia Room. Steve?

Thank you, Lisa. Good afternoon, everyone. Pleasure to be here. And I'd like to start with the safe harbor statement. And to start, I'd like to share what we do at Quest Diagnostics, which is we are the world's largest laboratory, but what we believe is that we're really in the business of diagnostic information services. We think there's more we can do with our data. There's more we can do with the content around that data. And there's more business -- more business and more opportunities to apply that and be able to -- to be able to distribute that broadly through the health care delivery system with our services. So really, our vision is to empower better health with that diagnostic insight. And we've been on this direction and vision for about 7 years, and we're making tremendous progress. And we'll share some of that with you this afternoon. Second, to execute against that ambition, we have 2 strategies, which we have been engaged in over the last several years. One is to continue to accelerate growth; and second is to continue to make our business a better business, or what we call driving operational excellence. And we think those go hand-in-hand. We're not going to be able to grow unless we have a well-performing business, and we think it's important that every day, we get better at running our business. And to think about our business and to look at our portfolio, we really thought of our business through 3 lenses. The first lens is our core business, which we call general diagnostics. It's the basic diagnostic testing business, sometimes referred to as routine testing. And if you think about the company, it's about an $8 billion company, about $6 billion of it is general diagnostics. And we believe that is an opportunity to continue to grow. We believe it's an opportunity for us to consolidate, and we believe that we will continue to manage it in a better way going forward that will build value for shareholders. And then with that capabilities that we have, we have defined a new business which we define as advanced diagnostics. In our definition, this is all the genetic and molecular diagnostics you find in our industry. We're about $1 billion of our $8 billion company in advanced diagnostics. If you look at that industry, we're one of the largest, and we're a leader in many of the categories within it. And several years ago, we said it's important for us to expose that, to make it more visible to our investors and also put more resources into it. So we brought in a new leadership. We've put an increased level of investment in it. And we believe there's an opportunity to differentially grow that business than what we've done in the past and what we described as expanding it in our strategy. And then finally, with all this data and all these services we can provide, there's an opportunity for us to apply those more broadly to health care delivery. And we have a number of services, about $1 billion of our portfolio as well with that data generating opportunities for us to provide services that provide value for health care. So that's really the portfolio. And the way we look at making progress against that ambition is by looking at 3 goals. First, we always want to make a contribution. We're big believers in believing that when we do good, we could do well. And we believe we can make a clinical contribution. And we, with evidence, can describe that as creating value for health care, we will do well. We believe that we have many stakeholders, and we always need to think about building value, particularly for our shareholders. And then what we have found with the compelling ambition that we have, with a very compelling ambition of what we could do to make a contribution in health care, that by building value and doing good work, we can have an inspired workforce. And that, to us, are the 3 ingredients of a successful company. So when we think about that vision, we also think about how that applies to what many health care providers are looking at and are centering their direction on, and that's called the Triple Aim. And when you think about Quest Diagnostics and their value proposition, we think we line up well against this Triple Aim concept. First of all, we are making it a healthier world, we're making a contribution in our quality, and our service levels are second to none. Second, it is about the patient experience. And increasingly, we've focused on that over the last several years, and we think we're making tremendous progress. And then finally, driving productivity and therefore, our Operational Excellence program supports that as well. So to think through that, the first piece of this is what do we do to make sure we deliver high quality? Our presence within the health care delivery system here in the United States is really impressive. We see 1 out of 2 adult Americans in the course of 3 years. We keep that data for over a decade. So therefore, we have about 40 billion data points that can create value. We develop a number of our diagnostics. We protect it. So a number of patents are issued every year. We have a capability where we have access to patients in many different locations. We have around 2,100 patient service centers, where we're doing draws but we could also provide other health care services, and over 4,000 phlebotomists in physicians' offices. So we have over 6,000 access points as Quest Diagnostics. And then we have 20,000 health care workers, around 12,000 phlebotomists and 8,000 other health care workers that can be applied to diagnostic information services. And with all that, we're continuously focused on driving the best quality. Over on the left-hand side of this slide, you see that we drive, in some areas, Six Sigma quality performance. One indication of that is what we do around lost specimens. Nothing worse than having a drawdown and calling up a physician and saying, "We can't find your specimen. We need to do a redraw." So we take that seriously, and we've driven improvements over the years. Secondly, nothing more frustrating to a physician in health care delivery than those fundamental logistics challenges like a missed pickup. We also look at wait times and service times, all the classic metrics. And the performance there is really, really second to none. And one indication that we're doing a good job around quality and service is what we have been picked to be a year ago by UnitedHealthcare. We're 1 of 5 laboratories that have been chosen to be part of United's Preferred Lab Network. To be considered, you had to apply. You had to achieve a certain list of metrics in terms of access, quality, costs, service. And we were chosen from a long list of providers as one of their few within their network. So I think it's a testimony that we are delivering on that quality and service. Second is experience is something that we put a lot of energy in and a lot of resources. And our consumer strategy, which is to be the most consumer-oriented laboratory on the planet, is making good progress. First of all, we're bringing consumerization and the digital experience to health care. We brought out a smart app several years ago. We have close to 9 million users with a MyQuest app. With that app, you can get your lab results, you can schedule appointments, you could see wait time. We're attach ourselves to the Apple environment, and there'll be more applications and content as we go forward in time. Second is that physical presence is so important. I mentioned 2,100 patient service centers. Back 4 or 5 years ago, we had around 20% of those 2,100 patient service centers in retail-like settings. Big parking lots, convenient access, more storefront visibility. We think it's important for health care to have convenience. And so our goal is to move to about 50% of those patient service centers in more retail-like settings. To help us with that, we've teamed up with Safeway stores. We're in about 150 Safeway stores. That work has gone well. We then formed a joint venture with Walmart in their superstores, supercenters, and we're in 75 of those stores. And the progress so far has been quite good. We also see the opportunity to expand the relationship with Walmart to have other basic health care services. And also, these 2 relations do not preclude us for having other relationships as we kind of think about that goal of getting to about 50% of these centers in retail-like settings. And then finally, we're bringing products to the marketplace. We started 8 years ago with a product we call sports diagnostics. We did this with the New York Giants. It was really taking one for the team since I'm a Patriots fan here. But actually, we learned some things about what it takes to go to the marketplace. And what we learned is that consumers really do have an interest in knowing their numbers and understanding what they could do better to manage their lives. So we actually brought out a product last year. It's called QuestDirect where we're marketing direct to consumer some of the basic testing. In 22 states, you no longer need a physician's order to place -- in order to request diagnostics online. In 26 other states, we actually have a telehealth network that will serve up the order to be able to get the testing from Quest. Early results are quite promising. We're growing week after week as we continue to get volumes. And that will be the platform for consumer genetics. We do see an opportunity around consumer genetics, and you might have heard that the Ancestry now is expanding their presence in health care to provide basic health care analysis going forward, and we will be their partner to do that. So with that digitization and more consumerization of health care, with the presence that we're building with retail and with those products, we believe we're making tremendous progress against this goal to be the most consumer-oriented lab on the planet. We also measure it. When people leave our patient service centers, we give them a survey. We've done Net Promoter Scores. And you see the scores on this chart, very high in our Net Promoter Score for our patient service centers, 83. And if you know anything about NPS scores, this is very high. So very good progress there. And then finally is the price point. And the price point, like so much as health care, it's got wide variation. And if you look at Quest Diagnostics and you say that's $1; and if you look at some of the price points for hospital outreach laboratories or boutique laboratories, it could be as much as 5x the rates we charge. So clearly, we are delivering on that Triple Aim. Now the marketplace is about an $82 billion marketplace. If you want to think about it simply, about 2/3 of that marketplace is outside of the hospital, about 1/3 is in acute care. You then look at that outside of the hospital marketplace, roughly 54% of that market is around independent laboratories. And then within the independent laboratories, you see that ourself have about 24% of that market, and we're the market leader. What you also see from this is that even though we are the leader, it's still a very fragmented marketplace, and there's plenty of opportunity for us to consolidate it. We believe the market overall is growing around 1% to 2%. Some price pressure, particularly now with the cuts in Medicare, but also price pressure WITH some of the commercial payers as well. There is a fundamental change happening in this industry, and we believe it affords us -- there's a short-term challenge to deal with some of the price pressure but long-term opportunity for us to gain share and consolidate. And there's really 3 areas. One is we're getting cut by Medicare like we have been before, a big cut by Medicare with -- driven by the act called PAMA, Protect Access to Medicare Act. We have estimated that with the PAMA implementation, which we argue was not done correctly by CMS, you're going to take out roughly half the profit in the industry because Medicare is the biggest buyer of laboratory services. So whenever you take half the profit out of -- in their industry, in the other fragmented industry like I just described, you're going to see consolidation, and it will benefit the leader. Quest Diagnostics is the leader. Second is health plans are now looking at the wide variation, looking at the opportunity to move towards working with fewer providers. You see that with the UnitedHealthcare because they see the advantages of working with a high-quality, great experience, price effective provider like Quest Diagnostics. And United is one example. There will be many more examples as we go in time. And then finally, with the consumer paying more and more of health care every day, we see consumer shopping and looking for the best value. And as I simply say, Quest Diagnostics is the best deal in town. So let's walk our way through that. So PAMA. Some of you might have heard that we actually pushed as an industry to put in place what's called the LAB Act at the end of last year. This will delay the data reporting period for 1 year. It'll also require CMS to have a third party do a study on a better way to collect the data because we believe how they implemented the intent of Congress that pay us market-based rates as the laboratory provider, they got it wrong. And so we want to take the time to get it right, we want some third-party advice and we're hopeful that we'll continue to engage with CMS and engage with members of Congress to get it right as we go forward. Second is we continue to work with commercial insurance companies. I mentioned UnitedHealthcare. UnitedHealthcare is now one of our partner. We have the best access that we've ever had, and the United will eventually become one of our biggest partners in that regard. And the opportunity we see with commercial payers is to take the variation out of health care cost. And a portion of that is an experiment, if you will, around laboratory variation of price. Some people have estimated, if you look at the $3.6 trillion in health care spend, about $0.5 trillion, so $500 billion, $0.5 trillion, is borne by this variation, by provider, by geography. And if they work on reducing that variation, you could bend the cost curve. And that's what the opportunity is around laboratory -- Preferred Lab Network that we're driving with United. But we also believe that other health care insurance companies will follow. As I mentioned, we have the best access we've ever had. In 2019, we announced we're back in network with UnitedHealthcare. We're back in network with Horizon in New Jersey and Anthem in Georgia. It affords us an opportunity to pick up around 43 million new lives that now have Quest in network. We moved from about 80% of access of insured lives in the country to about 90%. When we go through the math of those lives, extended by the opportunities around testing, we see we now have a $4 billion growth opportunity. And what we've shared is that of that $4 billion, we believe there's at least a 25% share of that $4 billion we should get as Quest Diagnostics and about $1 billion for Quest eventually as we work through gaining that share. And then finally, I mentioned the consumer is paying for more and more health care. I would like to remind you of some of the data that's come out of the Kaiser survey, what you see on this chart, and that looks at the year of 2006 and compares it to last year, 2019. And the shift of costs in this country to consumer is staggering. So consumers are becoming more active shoppers and better consumers of health care. And we think that plays well into choosing Quest Diagnostics. So if we're moving from left to right, you see that if you look at high deductible programs, 4% to 30% of the insured lives in this country. If you look at just absolute payment, out-of-pocket costs, $300 back in 2006 to close to $1,400 in 2019. If you look at the cost of a premium for an individual, $2,000 roughly, over $7,000 in 2019. And the most staggering number and when you look at a family and you look at the cost to insure that family, it's about $20,000. Now, as you know, most of us self-insured employers are paying for about 70%, and 30% is then shared by our employees. So it's a big cost to the consumer and our employees in the United States, and they're becoming smarter and smarter shoppers. And we think Quest Diagnostics is a good choice. So with that as the backdrop of the opportunity in the industry, we said we have 2 strategies to go at it. One is to accelerate growth. We have 5 strategies for that. The first, given that dynamic, we think there's a lot of catalysts to consolidate the marketplace with all those changes in our industry. And so we believe we're going to grow about 2% from doing acquisitions that are within our scope of our strategy in Diagnostic Information Services that are accretive and can make money for our shareholders. Second is we're going to continue to partner with these commercial insurance companies and as they drive out that variation. And included in this strategy is working with hospital systems on their laboratory strategy. We've engaged with integrated delivery systems on helping them think through what they do around their laboratory services. We do that in 3 ways. We can help them become more efficient in their hospital. We can save them around 10% to 20% by bringing Quest know-how to their hospital, acute care cost. Secondly is we can help them with their most sophisticated testing. A big portion of our opportunity in the marketplace is that sophisticated testing that hospitals send out or reference testing. And this is where it could help them get smarter, make better choices, do a better job of purchasing. We've actually provided a new service now to hospitals to help them get smarter. We call it Lab Stewardship. Nothing more expensive to the hospital system, particularly when they're taking the risk, than a bad diagnosis. And then finally, as we get into that conversation with hospital systems, typically, they look at their outreach business where they're competing with us and ask a question do they -- should they stay in that business given the price pressure they see from Medicare and the challenges they see from commercial insurance as well. The third strategy is to, again, expand our presence in advanced diagnostics. We believe we have a great portfolio of diagnostics. There's more we could do, particularly with the opportunities around precision medicine and the opportunities to bring more of this innovation to the marketplace to achieve our vision. I already talked about being the most consumer laboratory in the planet. We're making excellent progress. I think you see it when you engage with Quest in the marketplace. And then finally, using this data to find those patients, to be able to monetize it in a way that's useful for health care and then apply these capabilities and services to the challenges of health care. And there's a lot of opportunities for us to grow and make a broader contribution in that regard as well. We again made that up with our second strategy, which is driving operational excellence. Again, we believe it's important to bring these hand-in-hand. We can't grow unless we run a well-oiled business, and we continue to make that business better every day. We have 4 strategies that we've been working on to go at that operational improvement. And our goal, beyond quality and service improvements, is to save about 3% per annum on our cost base. Our cost base is around $6 billion. So essentially, $180 million to $200 million per year that we're saving. And we've been doing this for about 7 years, and we're making progress. The 4 areas is we continuously look at how we get payment and working with some partners like opt-in health care to drive improvement in receiving our payments back, particularly from patients and also from health care insurance companies; digitizing the whole workflow, a lot of opportunities to bring digital technology to the workflow and take cost out and make it better for our customers; optimizing our network of physical presence in the market; and do that through some of the applications of automation and standardization to drive complexity out by leaning out the whole process. And we're often asked the question, "It seems like you're taking a lot of cost out, how can you be doing this year upon year?" And so we often like to provide some examples of how we do it. So one good example of what we're working on as we speak is we actually, in many of our laboratories, have 7 platforms we write a variety of tests on. It's in the category broadly of immunoassays. We have 6 suppliers for all those different tests. We have over 500 units. We do about 128 million tests per year. So phenomenal complexity. And so fortunately, some of our suppliers who we partner with are bringing out new platforms that could collapse that into 1 platform. And so we've engaged with a number of suppliers. We down-selected it to one. We eventually implement this through our fleet. We'll take out about $35 million worth of cost and improve quality and reduce complexity and also improve the ability for us to leverage more of our real estate assets going forward. A good example of applying automation and applying integration into our business. And then second is we're going to take some of that and put it into new facilities. Over the course of the last 7 years, we have simplified our workflow. We have driven standardization in our systems. And by doing so, we then can collapse physically some of our locations. And one good project we're working on, we're building a brand-new, state-of-the-art facility in Clifton, New Jersey. It's about a $300 million project for us. And this will be a state-of-the-art facility, and this will drive more productivity. So more opportunities for us to continue to deliver value by driving productivity, while at the same time, we get better quality and better service for our business. And so we're bringing those strategies together, and you focus on that ambition. At the end, we look at shareholder return. And no matter which way you look at it, look at the last year, we had a good year, 31%. You stack it up versus many indexes, good performance. If you look at that, the 6-year time frame, which is a good time frame to look at when we implemented the strategy, 126%, good performance versus the indexes we track. And if you look at the one to the right, we look at health care services, 144%. If you take out health care insurance, it's in the high 70s. So actually, we scored well against that. So in summary, we have 5 takeaways for you to think about. What is our quality, or service or your price? They're unparalleled. And therefore, we have the best value proposition on the planet. Second is this reimbursement pressure from Medicare and also commercial payers, provide us an opportunity to consolidate and gain share in the industry that we participate. Third is the access provides us the best opportunity we have in over a decade to gain share, that $4 billion opportunity, which we should get at least $1 billion of. Our hospital strategy is working. We're engaging with hospitals to drive better lab strategies. It affords us an opportunity to be their partner. And then finally, health care clearly is becoming much more of a consumer-oriented industry every day, and the Quest brand is really second to none. Thank you very much. We'll see you at our breakout room.

Okay. We're starting. Good afternoon, and welcome to the Quest Diagnostic breakout session. My name is Lisa Gill, and I'm the health care technology and distribution analyst at J.P. Morgan. This is the end of our day. Thank you so much, Steve, for spending some time with us. I have Steve Rusckowski to my left, who is the CEO; Mark Guinan to my right, CFO; and to his right is Shawn Bevec, who is Investor Relations. Okay. So if we think about your 3-year -- you're now 3 years into your 2-point strategy to accelerate growth and drive operational excellence. Can you speak to the progress you've made so far? And what are the most -- what are you most pleased with? And where do you think there's still areas of improvement?

Yes, yes. So -- is this on? Having an issue? Yes. Is it on? Is that okay? Can you hear me? Yes. So Lisa asked me what we have -- we have this 2-point strategy, which is to accelerate growth and drive operational excellence and what do we feel best about. One is we have brought back growth to Quest Diagnostics, okay? Yes. And even despite a very challenging environment, we have demonstrated that we can gain share and we will grow. And I'm particularly pleased with the new access changes that we announced last year with UnitedHealthcare, but also the opportunities that affords us to pick up share going forward. And then if you combine it with our proven track record of continuously driving better quality, better service, greater productivity, we think with the environment of health care, that's going to serve us very well. We provide a great value proposition to the marketplace. And increasingly, that's going to allow us to gain share as well.

If you do have any questions, by all means, please raise your hand. I -- we're open to other questions from the audience. So this year, you were selected for United's Preferred Lab Network. I think you put that up on the slide today as a potential opportunity. Do you anticipate getting any share in 2020? Or will it take time for employers to adopt this Preferred Lab Program?

That's going to help us in 2020. Lisa, we sized this to be about a $4 billion opportunity with the new access changes, United being the largest portion of that $4 billion. We started with the opportunity in 2019. You see in our numbers through 3 quarters. We're going to announce numbers for the rest of this year in January. And what you see is we picked up share. But what we also said, we're not going to get it all done in 1 year. So there's more opportunities in front of us. And the Preferred Lab Network was essentially announced in the summer, and it creates us another toolkit to be able to gain more share as we get into 2020. So you will see some share gains from -- and that will be afforded to us because of the opportunities from the Preferred Lab Network.

Yes, go ahead.

We're seeing the industry converge. You have several deals [indiscernible] UnitedHealthcare partners. What do you see is the role for Quest Diagnostics? And are you considering exploring other areas, other diagnostics and also [ other partners ]?

Yes. Could you repeat question again, please? Start from the beginning. Yes?

If you come to microphone, so you won't need to repeat it.

Yes, please, yes.

So first question is we're seeing the industry converge; several deals. What do you see is Quest Diagnostics' role in that? And second question is, would you consider expanding your role to other areas of the health care [indiscernible]?

Yes, sure, absolutely. Yes, so the market is consolidating. And if you were at my presentation, we believe that some of the dynamics in our industry are going to be catalysts for consolidation in our industry. So we will consolidate. And we will be a consolidator. We're the leader, and we should benefit from that. Now if you think about where we were 7 years ago, we were starting to diversify before I joined the company. And what we said 7 years ago is we're going to refocus on our definition of what we do, which is Diagnostic Information Services. Yes, we're the world's largest laboratory, but more importantly, we provide information, diagnostics. And we could then provide more content around that information and then be able to apply it in better and broader ways with new services. So our scope is Diagnostic Information Services. So we actually divested for some device business to focus entirely on that scope. But you think about that scope that allays us of an incredible opportunity to expand beyond traditional laboratory services. And I described when I was giving the presentation some of those service areas, using all this data we generate in applying new services. So if you look at that services business, we actually have the market leader of providing medical checkups for life insurance. We're the market leader. We have people going into homes. We're doing medical exams. We're providing that content to one of our customers who are life insurance companies. Second is we're the market leader for providing to employers wellness programs. And wellness takes all different sizes and shapes. Some wellness program is taking your weight and calculating your BMI and giving you some of the nutrition and coaching. Our wellness program is actually doing biometric workup, taking a draw and serving up the numbers. And with those numbers, smart employers could then do population health for the self-insured employee base, and we can provide services around that. And then finally, with this data, we believe there's an opportunity to work with payers and we'll work on the risk pools by finding those patients with the data, providing more services. And with those services, we can clearly show with evidence, we can bend the cost curve. And so those are the opportunities we see to grow. And so yes, we've consolidated, and yes, we -- our focus, we will see plenty of opportunities to grow around that definition that we provided.

Annie?

How should we be thinking about the impact of PAMA into 2021? So obviously, that's a couple of points more. But as we move into 2021, will there be a step-up or will there be less of an impact?

Yes. Mark, do you want to take that?

Yes. So we've shared that 2021 is going to be similar to '19 and '20 because even though the cap moves to 15% from 10%, you're starting to get to the fee schedule that's been calculated. So there's less difference between where you exit '20 and where you're going to end up. Then 15%, in many cases, some of them actually will reach that point in 2020. So what we've told at this point is expect a similar level of PAMA cuts if nothing else changes in 2021. At that point, it should be pretty much all behind us, and then it's really determined whether we get effects through the LAB Act or through litigation. And then the next collection data, if it's done, what we think accurately, we actually would expect prices to go up. But that's a lot of ifs in there. So we believe the cuts were excessive based on how we understand the market. That's why we're fighting it. But right now, 2021 should be the last significant cut until things get updated.

One of the fallout effects from PAMA -- or one of the potential benefits for the lab industry was supposed to be consolidation as we saw PAMA cuts for hospitals and some of the other players. I think it has gone slower than a lot of us on Wall Street anticipated. Can you maybe just walk through is it a disconnect in the valuation of what they think they're worth versus what someone like Quest is willing to pay? Is it that it hasn't trickled down in their income statement, where they're really feeling the pain from PAMA because they're part of a larger institution?

Yes. So let me start, and then I'll turn it over to Steve. It's not a valuation disconnect. We really haven't run into a situation where a potential seller and us spent some time with due diligence and there was a huge disconnect in value. It's really the process of getting to a decision and all that has to take place in a hospital system to actually get to a transaction. So I'm not sure if you...

Yes. And if you look -- Lisa, if you look at today and the number of discussions we have versus 3 or 4 years ago, it's changed considerably in terms of the funnel. People do understand there's going to be pressure from Medicare, and it's not just Medicare. It spills over to Medicaid. And then they see the forces from the commercial payers as well. So they get it. And so most hospital CEOs do have it on their shortlist of strategy topics they need to work through. And so we engage with them on the strategy topic, and it goes back to what we've been focused as a company. It's not just selling their outreach. It's a broader conversation, okay, tell me how you can help me save money in my hospital, acute care setting. And we say we can save you 10% to 20%. But by doing so, that means you're going to take out more of the sophisticated testing. Tell me how you're going to do a better job of helping me get smarter about those diagnostics. There's nothing more expensive than a bad diagnosis for a hospital. And then finally, when you get into that conversation, do I really want to be in this business, competing with you or should this be a good time to monetize it? But since it's -- those 3 topics, it's a broader conversation. There's many more people engaged and it takes a longer time to complete it. But we're making progress on some bigger, chunkier opportunities that you'll be seeing soon, okay?

And then just to finish it off, Steve likes to share that we did a transaction with Cape Cod last year. That was ongoing for 5 years. We started it 5 years ago.

[indiscernible], yes.

And that was just their process on their side that had took that long to get through?

Yes, absolutely.

Well, it's a hospital, right?

Yes, it's a hospital.

It never stops and starts. It's though as if over the 5 years we're in discussion and dialogue and things will pull off for a while and we'd be back, yes.

Yes, yes.

Steve, you noted today in the presentation that you continue to see some level of commercial pricing pressure. Where is that primarily coming from? I mean we understand the PAMA pressure and whatnot. But is that new or different than what we've seen historically?

Yes. Well, we've been doing a nice job, Lisa, of kind of managing our price because we do believe we have very competitive pricing. And in some cases we mentioned last year, we actually raised prices. We've been working with some partners to realize that we could raise prices, and they're willing to pay us for that. And so we have been staying in an envelope of about 100 basis points with the headwinds around price, and that's all that, right? So you have commercial insurance changes with insurance contracts. You have client relationship with physicians. You have hospital deals. And so we've been less than 100 basis points, and we think that's a good envelope to stay within. We'd like to make it better over time because we already believe, as I said in my presentation, we've got the best deal in town. We have great service, great quality. We've been chosen by the world's largest health care insurance company as one of the preferred laboratories. Therefore, our prices are very competitive. And over time, we need to keep them pushing on. That value has a lot of value to them. And therefore, we need to offset some of the price pressure we see in our wage bill as well and start thinking about wage increases.

Right, right. And leverage the model, right?

Yes, change the model yes, yes.

Leverage the model from a volume perspective?

Yes, yes.

And we've shared that in the past, a lot of the pricing pressure was from third-party commercial contracts. Not as much now. It's really shifted more in the client bill, and the client bill is really made up of 2 things. One is a hospital business where we do the reference work. And with hospitals under tremendous pressure, when you think about the hierarchy of considerations on who they're going to award the business to, it's going to be test menu. It's going to be relationship. It's going to be price, et cetera. It's shifted more to price because they have consultants coming into them saying, "You've got to do an RFP." And the stakeholders that maybe in the past had more weight because -- I know Quest, I don't want to really take a risk. I don't want to shift it out. There's more C-suite that's driving, hey, it's got to be all about savings. So there's been more pricing pressure in the hospital business. The other one is the physician client bill. So in the states where there are anti-markup laws, physicians can actually decide to make markup on the lab work. So one day, they're sending their patients to us, we're getting paid by the insurance company. The next day, they decide they're going to bill the insurance companies and then we contract with them and we actually get paid by them indirectly. And unfortunately, then it shifts to, well, I was sending work to Quest because of their high-quality lab and now it's, well, this is my P&L. And so a fly-by-night, the lab stopped by and says, I'll give you a nickel lower on the CBC, we get a call immediately. We made the nickel. So there's this -- and of course, we resist that. And -- but there's a lot of pricing pressure when physicians have a profit incentive around markup.

Yes, go ahead.

I received the progress of your hc1 partnership and…

Yes.

Was that due to improve the percent from [ capped plans ]?

Yes, absolutely. So the hc1, for those in the audience that aren't aware of it, we actually teamed up with a third-party company that provides a capability for us to offer to hospital clients, what we call, Lab Stewardship. And it basically is part of this lab strategy. So we offer those hospitals an opportunity for them to look at other diagnostic volume, the variation of that by physician and then the opportunities to start to consider better diagnostics for certain disease categories and as I said in my introductory comments, get smarter about diagnostics because there's nothing more expensive than a bad diagnosis. And when we engage there, what we find is there's some overutilization. But more importantly, we actually find some underutilization, okay? And so it actually provides all of us an opportunity to do a better job of providing health care. And as you know, if you're running a hospital system, it is all about patient outcomes. And we think there's a great opportunity for us to bring value. And when we get in with that product, when we have those relationships, we clearly become less of a supplier, much more of a strategic partner. And particularly, if we're helping them run their hospital laboratory and helping them become more efficient, and then if we become a partner for their physicians with their outreach business, clearly, it's Quest inside. So we are off to a good start. Early feedback from that product in the marketplace has been quite good. Yes.

Yes, go ahead.

You mentioned one of your strategies was to leverage diagnostic innovation. So one, where do you see some of that coming from? And how does the young company like ours could attest to disrupt the market? And how do we try to contribute to that?

Yes, exactly. So when we talk about that strategy, it's really primarily focused around advanced diagnostics. And our definition of advanced diagnostics is entirely genetics and molecular. And I mentioned that we do about $1 billion of it. And so if you look at that market, the way we define it, we're one of the largest players. And we cut that by the various clinical areas like oncology and neurology and women's health and prenatal testing. And for all of those, we're always looking at make versus buy. We actually have a very strong innovation team. Many of those people are here in California, in San Juan Capistrano. That's the former Nichols Institute. That's where many of our MD/PhDs that are developing laboratory-developed tests reside. But also, we also will look at partnering. We license. We partner. And so it's not unusual for small companies in the space that are bringing new tests to the marketplace to engage with us on that. Because beyond the innovation, we're also providing innovation of bringing that to the marketplace. We have dedicated sales force in all those specialties. We have the relationships with the payers. We have engagement with physicians. We have 50 genetic counselors. And so we think about filling out all our portfolio of our testing or diagnostic road map over time, and we need help in doing that. So small companies can be very helpful in our innovation pipeline.

Can you give us an update on the consumer strategy from both Safeway, what you're seeing as far as pull-through? And then secondly, the interesting relationship you have with Walmart, which is more than just lab, and where do you think the opportunities are in those relationships?

Yes, yes, yes. So we're excited about it. We've been on this for a while. We believe health care is getting more consumer-oriented every day. So our strategy is a bold one. We want to be the most consumer-oriented laboratory on the planet, yes. And when we started on this journey, we said, first of all, physically, we need to have a fresher brand. And so in 2015, we refreshed our brand. So if you look at the color and say look at the marketing, it's all very contemporary. But more importantly, it's not just the marketing, it's the experience. And so we really took a hard look at, okay, let's think through the workflow, think about that experience. And short of surely describing what we did, but frankly, we got rid of all those old-fashioned, antiquated processes like clipboards and whiteboards. And we brought our patient service centers into today's technology age of engagement with consumers. So you walk into a Patient Service Center, you'll see a kiosk. You see your name on a display. We then brought our smart app called MyQuest. That smart app is an engagement tool. So we then -- now have the opportunity to serve up results without even really pushing her. Look, Lisa, we have now over 9 million users. We then integrated that into the Apple environment. And then with that smart app, we're having more and more content. So you can schedule. You can see wait times. There will be more and more content over time. And then products, as I mentioned in my remarks, we brought a new product to the marketplace where you can directly order from Quest testing. So if you know you're going to pay for most of your health care out of your own pocket, you know you're on a statin, and you want to see if it's still working, you wanted to take -- have a lipid panel taken to see if your cholesterol and your LDL is still within range, without going to your physician, you engage your Quest Diagnostics. And in 22 states, you don't need an order anymore, okay? In 26 states, we connect you with a total health platform. We can get you the order. You come into one of our Patient Service Centers. We resolve it. If you're out of range, we can give you some advice on what to do about that. So really some nice progress. So if you look today of our experience versus where it was, we've come a long ways. And if you work with health care insurance companies and you think about the engagement they have with their members, for those healthy individuals, there's not that many touch points. This is one of those touch points. And so they think about that. And then when they come to Quest, they think about United when they come to Quest. And so it's important for us as they think about bringing new value to health care insurance companies. We think about that engagement with the consumer, that health care consumer.

Do you have a specific relationship on the telehealth side in those 26 states?

In this product, we have PWM as our network. But we work with other telehealth platforms, yes. So we work -- engage with many. We have Teladoc within our own health plan. We're engaged with them, American Well. So there's other platforms we engage with as well. Yes.

And just as with the Walmart, Lisa, quickly...

Oh, yes. Thank you.

So we have -- as Steve mentioned, we have about 75 locations right now. You shouldn't be surprised if later, we expand it. It's been very successful. They've been happy with it. And it is a little different than Safeway and what our 2 competitors do in Walgreens in that we have a JV with them. So it's not just placing draw centers in there. We do have a couple of situations where we just have a draw center. We're paying them rent like we do with Safeway. But in most of the locations, it's a JV, where we've said, together, we want to expand our health care presence beyond just phlebotomy. We start with phlebotomy. They looked at us and said, "You're a well-known brand. We know you're going to drive a lot of traffic." That's a good start, but we've -- in some of the sites, we placed basically hearing tests and its ability for Walmart to sell hearing aids. We actually are doing some diabetic retinal exams there, and they have said to us -- they're Fortune 1 -- so they're driving this. So they've said to us they want to expand other services. And so we're going to have a JV. So we're the majority owner, 51%. So right now, we, as Quest, are paying a fee actually for the draw, which, in essence, is -- half of it is ours anyways. And then we're sharing the revenues that go beyond the laboratory testing. The JV does not share in the profit stream from our laboratory testing. It's really just a service right now for phlebotomy.

There was a question back there.

So many nondiagnostic players are just now coming into diagnostics for this. So where is the sort of [indiscernible] diagnostics? Are you looking at the next steps into driving the revenue or supplying the knowledge for that?

Yes, yes. So remember, we talked about being in the business of Diagnostic Information Services. And one of the opportunities we see in service is to provide services to pharma and using the data to be the opportunity that we can serve up some new value. So last year, actually, we introduced a new product, where we're using our data and access as a provider to patients to help them accelerate some of their clinical trials. So with the data, based upon trials that lend itself to lab data, we can do a great job of identifying individuals. We are a provider, so we can reach out to those individuals directly and ask if they want to participate, so they opt in. And then we engage with them on understanding how we get them to develop a team to be able to manage those individuals and shorten the length of time to bring the product to the marketplace, the drug to the marketplace. So we think it's a great example of using that data to create value. In parallel with that, we have those data. That data can be useful in terms of looking at opportunities for growth, targeting segments of the marketplace. And so that's also been useful for that segment in the marketplace.

We only have 2 minutes left, [ Edward ].

Would you like a partnership with Parexel or someone like that?

Yes. So we work with all the CROs. We have, [ Gary ], a joint venture with now IQVIA. We initially took our central lab clinical trials business, and we merged it with Quintiles, and we created a new joint venture. It's called Q Squared. We own 40%. They own 60%. And so we have a great working relationship with Quintiles, now IQVIA. But we are not precluded with working with the other CROs, okay? So we can work with Parexel. We can work with all the other CROs as we bring more value to the marketplace. Yes.

So Steve, we've closed all of our sessions over the last couple of days with this final question to the CEO. When you're sitting here in 2021, what do you want investors to understand or what do you believe investors will better understand about Quest that they don't today?

Yes. So that value proposition that we have developed over time, in my mind, and increasingly, it's becoming more visible. It's really second to none. And so it affords us a great opportunity to do 2 things. One is to pick up share in our core business by working with our partnerships, particularly with some of the health care insurance companies like United. But also equally, we have data and we have capabilities that can be applied to the biggest challenge in health care, in my mind, which is cost. And I like to believe in 2021, you would see us more present of using that data to help in the cost curve and deal with the challenges of health care delivery.

Great. Thanks, everyone. Thank you.

Thank you.

Thank you.