Quest Diagnostics Incorporated (DGX) Earnings Call Transcript & Summary

Hi, everybody. Thanks for joining us this afternoon. My name is Elizabeth Anderson. I'm the health care services analyst here at Evercore. Very pleased to be joined by Jim Davis, CEO and President of Quest Diagnostics; as well as Shawn Bevec, who's the VP of IR. Thank you so much for joining us today. Thanks for doing that.

My pleasure.

Maybe just starting off, where -- let's talk about sort of pricing because I feel like that's like the biggest shift. And I know you're probably -- this is the first time you've ever discussed it, but I think it's something that still people have a lot of questions in because it has been such a different shift post COVID. Maybe looking at different customer types, like for health plans, pricing has been sort of flat to modestly positive, I would say. Can we talk about sort of the main drivers of that? And as we think over the next, it doesn't have to necessarily be 2025, but over the next couple of years, the sustainability of that as we go forward.

Yes. So first, when we talk about price because we have these terms price and rev per req. But let's strictly speak to what we call price, and that's price per test. It's listed out in a compendium and very discrete on a per-test basis. So from a health plan standpoint, and when we talk about the health plans, that's going to include Medicare Advantage, it's been largely flat to slightly up. And the typical health plan contract is 3 to 5 years. So every year, we're renewing roughly, let's call it, 25-ish, 30% on the high end of our health plan agreements. So it's been stable. Now one of the things that's actually helping create more stability actually is transparency because it's pretty easy to get information on our pricing to the other health plans. And so that actually assists us in reducing the variation from the high to low. And where there is variation, you want to make sure that it's driven by some logical things like the markets you serve. California is more expensive than Iowa. It should be driven by volume. Health plans where we do a ton of volume should get better pricing than health plans where we do less volume. And so actually, transparency, we think, is helping bring stability and reducing the variation that we previously had across some of our payers.

That makes sense. And what about the sort of pre COVID, we think of having these exclusive models that then went sort of multi -- for the most part, not every single one, obviously. Has that also helped in terms of the pricing in the market?

I think so. I mean obviously, pre COVID, let's go back to sort of 2017, 2018, we were not in UnitedHealthcare's network. Labcorp, our nearest competitor, was not in Aetna's network. For the most part, I think we were both in Cigna, Humana. And most of the Blues, we are both in network. Since that time, with Anthem, we were only partially in their network. Now let's play this out. We're all in United's network. We're all in Aetna's network. On January 1 of this year, we will be back in network with the 3 states that we were not in network with, with Elevance. That's Nevada, Colorado, Virginia, and we had limited access to only a portion of the Anthem lives in Georgia. So we're in network everywhere with Anthem. So that's it, okay? And it's a dual source. So I think now there's still some Blues plans where they've chosen 1 and not the other. I would say there's 3 or 4 of those around the country. Some benefit us, some benefit others. But look, I think the health plans have come to the realization, it's better to have the independent labs broadly in their networks because we're the ones that are going to have a greater probability of getting those reqs out of hospital labs. And if you think about it, when we got kicked out of the network and let's just say we had -- take 100% of our business that we lost, if you think more than 50% of that went to an independent lab, that would be generous. The other 50% went into hospital labs that was getting priced at 2 to 3x what we were. So it really never saved anyone any money, which is why broadly we're back -- all of us are back in network. So it's really the independents against everyone else is the way we think about it, okay?

Yes. No, that definitely makes sense. If we think about that change, are they doing things in plan design to help push share to achieve those savings on that side, too?

There are some creative things that are piloted around the country. One is if you use an independent lab, there's no co-pay or co-deductible, okay? Now the employer obviously has to agree to that, but let's play this out from an economic standpoint. If the req goes into the hospital, it's a $200 req and let's say, the payer or the employee is paying 20% of it, so they're paying $40, but the employer is paying $160, okay? Now that same requisition goes to Quest Diagnostics and we'll say it's half the price, $100. The patient pays nothing but the employer is only paying $100. So they're saving money. Now the employer has to be convinced that if they sign up for that kind of a deal, that they can convince enough of their employees to use independent labs. And by the way, it's not just convincing employees. It's often, think about when you all go to the doctor. Many times, the doctor doesn't even ask you. You have to express, "I want my lab work to go somewhere."

I know better now.

You know better now, and you should. You all -- generally, with any of the big payers or any of the Blues plans, you have choice. And if you vocalize that choice, the doctor has to do what you ask them to do. Now if that doctor works for a health system, in general, they're not going to ask you, "Where do you want your lab work to go?" They're going to send it into the health system lab and it's going to cost you more money.

I'm aware. Yes. No, I appreciate it, too. That's good, yes. Maybe talking about some of the health system pricing for the health system portion that you guys obviously work on. That has been not as robust as some of the health plan pricing you've seen. How do you kind of see that portion of the business kind of changing or staying the same over the next little bit of time, too?

Yes. So we've definitely experienced price loss in the health system segment. And it's predominantly in that portion of our business, we call it reference business, work that they refer out of their lab to our lab. It's about somewhere between $1.1 billion and $1.2 billion of our business. Now why have we seen a lot of recent price pressure in that segment? Number one is during COVID, nobody ran RFPs, okay? Everybody...

Yes, they're too busy.

They're too busy with other things. So generally, these health systems will run an RFP process every 3 to 5 years. That was completely stagnant. So that was good news. Nobody switched reference providers during COVID, very minimal switching. So now coming out of COVID, there's been a lot of pent-up demand to sort of relook at the pricing and issue RFPs, and that's when things get very competitive. So we're seeing a lot of that. The second reason, which I think has lessened a little bit this year is, look, coming out of COVID, health systems were, in general, less -- their balance sheets looked less attractive than before COVID, okay? Now I think this year has been a better year for health systems in terms of reimbursement, in terms of utilization. But nonetheless, they're still looking for price reductions on that book of business. And so we don't want to lose it so you do what you have to do. We have a value proposition. I would say in some respects, there's less -- well, look, you have 2 independents going after that work plus you have 2 not-for-profit companies that go after that work, ARUP and Mayo. Then you have a whole bunch of niche specialty labs and genetics and cancer that go after that work. So it's competitive is what I would say.

Okay. No, that makes sense. And maybe turning more broadly. I think one of the things, at least in the investor perception, is that post the election, under the new administration as far at least as we understand the policies or the likely potential policy, it seems like versus other sectors of health care services, labs seemed a little bit more insulated maybe from some of the big policy pronouncements we've heard. How do you -- one, do you agree with that assessment? And sort of two, are there particular areas that you still think like maybe here and more in the nuances, I think this is either sort of a positive or a potential headwind going forward?

Yes. So I think there's a series of tailwinds and headwinds that we could face in the lab industry. So let me characterize it in 3 buckets. Number one is regulation and specifically LDT; number two, we can talk about Medicare reimbursement; and number three, we can then just talk about broader health care philosophy changes that we think may be good for the lab industry. So on the first bucket, LDT regulation. First, our trade association filed a lawsuit. Others have filed lawsuits. Those cases should be complete in terms of replies, rebuttals by Christmas. The court will probably take anywhere from 30- to 60-plus days to figure it out, okay, and make a ruling. Now if it's positive, then that's a relief. Having -- now it will be a short-term relief but we then think it will move back to what we're advocating, which is a legislative solution. Let Congress determine what the FDA -- the Congress already did determine what the FDA should not be doing. And so it will likely lead to more legislative activity. But temporarily, we -- our hope is that the court case is favorable. Now the new administration can't just come in and rip up the rule, okay? That will take time. What we do know is when the administration was in office from 2016 to 2020, Alex Azar expressed in writing and was very clear that he did not think the FDA had the legislative authority to do what they just did, okay? So we view the new administration coming in as sort of obviously less regulatory minded, okay? But it would take time to change the existing rule, whether that's 6 months, a year, not quite clear. So that's on the LDT regulatory front. On the reimbursement front for 2025, as you know, it's already been decided that there will not be another PAMA cut. There's one more cut slated. It got -- the can got kicked 1 more year. Not clear where that's going to come out. Now we're going to continue to push for 2026, a solution, a permanent solution. We've been pitching this thing called SALSA for the last 3 years. It had moderate success but you could never really get all the committees, 2 in the House, 1 in the Senate to coalesce around it, okay? So we'll be hard at work to get a permanent solution regarding Medicare reimbursement. The last bucket is sort of philosophical differences. And I'm not here at all to be political or talk politics, but this notion that we hear coming from the nominee for HHS is one of wellness. And much of what he's been speaking about has been backed by a physician at Stanford, Dr. Casey Means. She's written a book called Good Energy that talks about wellness. There's a recent Lancet study that has tracked obesity and overweight. 32% of the country was obese or overweight in 1990. Today, that number is 70% of the U.S. is considered obese or overweight. Now over those 34 years, that population is now aging into Medicare, and it's going to cost our government, whether it's Medicare or Medicare Advantage, a lot of money. Why? Because those obese people come with morbidities, comorbidities. It's diabetes, it's liver disease, it's cardiovascular disease, it's dementia. It's earlier signs of cancer due to the foods we're putting into our human body. So I think there's going to be a shift back to wellness, back to how do we get out in front of this, more diagnostic testing to enlighten people what's going on inside the human body. And I think all that can be good for the lab business.

Got it. No, that's helpful context. Do you have an internal, like, betting board about like how many years like PAMA can get kicked down there [indiscernible]?

Well, I think we're now 5 years?

Five.

And so look, the only good thing this year is that happened earlier in the year. Usually, at this point in the year, we have 2 budgets, 1 for if PAMA happens, 1 if it doesn't. But it's tough to run your business when a looming $90 million price cut, which is both revenue and, as you know, straight to the bottom line. But we'd like a permanent solution.

Yes. No, that makes sense. I think the doc fix was 11 years...

I think it might have been 17.

I think I had it right before they actually like get it, so okay. So we still have room to go. Hopefully, we'll beat that. So maybe if we think about the other element of pricing with the rev per req as we're sort of pulling those different pieces out, how much of a driver of the sort of increases rev per req? Like what is really sort of driving that? Is it really like test mixes? Are we seeing sort of like a certain test intensity? Like tell me -- talk to me a little bit more about how you see those reqs.

Yes. So let's just go back to the third quarter results. Our revenue growth, 8.5%, we said organically, it was 4.2-ish. And the rev req lift was 3-ish percent.

3.1%.

3.1%. It's predominantly coming from -- we said price is relatively flat, right? When you think about the components of rev per req, it's test, it's price per test, it's test per req and it's the kinds of tests that are on that. So we call that mix. So test per req have definitely been increasing in test mix, higher revenue tests versus -- are mixing that up. Now on the test per req side, what's really driving it? So I'd say there's 3 or 4 things that are driving it. Number one is the advent of and the use of more what we call advanced diagnostic testing. So these are things related to the brain. These Alzheimer's test, the AB42/40 for amyloid plaque detection, 2 important tau biomarkers that are getting some lift. In the cardiovascular health arena, cardiovascular goes well beyond LDL, HDL and A1c. These biomarkers, we call Lp(a), we call apoB, which is a genetic marker and then a third test called MPO. These are allowing physicians to stratify both normal LDL patients, a normal LDL patient with an LDL of 100, but your LDL -- I'm sorry, your Lp(a) or your apoB is high, you're at risk. And so these are further tests to help risk stratify their patients. Likewise, if your LDL is elevated, let's say 120, 130, but the other biomarkers are in line, let's not push that person to a CT angiography. So they're important tests to help stratify risk and help manage who really needs to get imaged and who doesn't. And we see physicians -- we see primary care physicians ordering this before you then put that patient on a pathway to go see a cardiologist, okay? Autoimmune disorders are off the charts. And we have some new recent tests that are helping us help the primary care physician. Again, is it rheumatoid arthritis? Is it irritable bowel syndrome? Is it celiac? Is it one of a number of autoimmune disorders? So we think that's really what's driving test density. The last thing I'd say is these functional medicine groups, you've heard of the company Function Health, others that are like them. Look, these things are really growing. And the test density, they're looking at all the things we just talked about, plus lots of hormone testing and things like that, and all of that is contributing to higher test per req. And it's also contributing to higher revenue per test, okay? So...

Yes. And maybe this is sort of a subcomponent, but I guess I'm surprised you're not mentioning sort of the aging population within Medicare. And like if you have more sort of 75-year-olds within Medicare, is that baby boomer cohort, like that has some driver to it, too. But I guess that's probably embedded in some of your answers about sort of amyloid plaques and like those types of Alzheimer's testing, too, right?

And there's some that gets co-mingled, right?

Yes, that's right.

But certainly, when we look at our absolute req volume and our test per req within the Medicare and Medicare Advantage population, you got to put them together because they're switching between the 2. But when you put those 2 books together, the req volume is higher and the test per req are always higher with that age group than with a 25-year old. And it continues to grow at a nice pace.

Okay. That totally makes sense. Can you talk about, one of the things is, obviously, over the past year, utilization among around health care has been broadly strong, right? We've seen it in prescription utilization. We've seen it in hospital utilization through that. And you would think of sort of particularly the hospital and facility utilization comes with increased lab testing. Obviously, not -- we haven't seen the same complete spike up in utilization that we've seen in some of those other categories. But as people are sort of thinking about that utilization stabilizing or maybe even that growth rate slowing a little bit going forward, how do you think about the impact on Quest's core business in terms of that sort of like broader health care utilization piece?

Yes. So if utilization going into primary care, OB-GYN, or any of the specialists is going up, we're going to certainly benefit from that. When utilization for inpatient procedures and hospitals goes up, we may benefit. It just depends. For some of the outpatient procedures like hip, knee, shoulder replacements, that really throws off very little lab testing. For things like colonoscopies, that's good for our business because we do a lot of that anatomical pathology work. So if something is removed, that's a big -- we have a $0.5 billion anatomical pathology business. And I would tell you more of that business is what we refer to as outpatient anatomical pathology, meaning GI work, colonoscopies, esophagus work, skin, derm, things like that, versus surgical biopsies, which generally you're looking at more in a hospital environment. So anytime you see increases in outpatient procedures related to GI work, dermatology work, it's generally going to be good for our business. In terms of just raw admissions into hospitals, the answer is it depends. If it's kidney transplants, any kind of transplant work, that's generally good because we could be doing some of that testing. If it's -- they're in for some rare infectious disease, that's generally good. So it just depends on what the -- where the growth comes from on the inpatient side.

Yes. That's a good nuance to think about. So maybe if we think about health system deals, obviously, as you point out, you guys have been active in that. As we think about sort of like the landscape of available deals, a number of big ones have been done over in the recent years. Are we sort of moving down to sort of like the next tier in terms of growth, in terms of opportunities? So we might see sort of like a greater number of them because they're each maybe a little bit smaller? Or sort of how do you think about that next tier of opportunity or maybe disagree that we're sort of approaching that?

Well, I don't -- it's hard to tell, but I think we -- even though we've done quite a few deals this year, we still have one to officially close, that's University Hospitals in Cleveland, which whether it's very end of this year or early next year, it will be in that time frame. What I would say is look, in part, it's us going and let's just say we go hunt. And we -- here's what we look for. We look for parts of the country where we have great payer access but we have very limited share. And generally, if we have very good payer access and we have very limited share, it's generally because there's very few independent physicians in that market. So Columbus, Ohio, where we did the deal with OhioHealth. There's 2 large health systems. There's OhioHealth and there's Ohio State University. And most of the doctors work for 1 of the 2. So our entry into that market, we had to get 1 of the 2. And so OhioHealth decided it wasn't a business they needed to be in and so they sold it to us. The same plays out in Cleveland, Ohio and in Minneapolis, where none of the independent labs had great presence or share in those markets because the health systems owned most of the physicians. And when you own them, they're going to send the work into the hospital. So those are characteristics of markets that we look for, and we go and start initiating those discussions. There's other opportunities that come to us. We may have pretty good share in that market or decent share. But for whatever reason, the hospital has decided they don't want to be in that market. Presbyterian, Cornell, Colombia, we did that transaction in 2023, but that was a market where they sort of decided, we just don't want to be in that business of doing lab work for physicians that sit outside the hospital, right, and are doing primary care, OB-GYN work. Why did they make that decision? Look, in the words of their CEO, lab is incredibly important but it's not a basis for why patients choose to go to Cornell or Columbia. They choose to go there for neurology, cardiologists, obstetrics, cancer. And based on both investment requirements to maintain leadership in those areas, space requirements in the city, they just said this is an aspect of our business that we can outsource to someone else. And that's why they made that decision. So I would tell you, I think others will come to some of those same conclusions. Capital costs are higher, as we know, with interest rates rising, so access to capital may be more limited. So health systems need to think about investing in what drives their volumes, right? And it's generally not having a better lab.

Yes. No, that's very fair. Maybe switching over from sort of some of the more revenue aspects to a little bit more on margins. You guys are still -- you obviously have your long-term target of the 75 to 150 bps of margin expansion. Like how do we think about the pluses and minuses to the 2025 margins versus where we'll end '24?

Okay. So on the plus side, we haven't given official guidance but we said we are comfortable with a 3% organic growth. Generally, with that kind of organic growth, we'd like to see the contribution from that in the 40% range. So feel good about that. Some of the acquisitions, the outreach acquisitions generally, over time, 2 quarters, 3 quarters, we can get them contributing in that kind of a range, okay, 40-ish-percent contribution. But it depends on -- and those are contributions. Now LifeLabs will come to us at the OM level, right? It's a stand-alone business. We said initially, it's high single-digit OM rate. We said over 2 to 3 years, we can get that back to the sort of Quest rate. So look, our goal is always, we know we're going to have wage inflation again going into 2025 in the 3% to 4% range. That's a, call it, $100 million to $120 million impact on the company. Your goal is to work productivity to offset the wage inflation plus other inflation. We have 2,100 patient service centers with escalations on rent, things like that. So you're always trying to offset all of that inflation with Invigorate, and then allow the other things to drop down at their contribution margin rate. That's kind of the goal. Now you've got $700 million of incremental revenue coming into the company next year from LifeLabs. So I wouldn't call it $700 million because we said $700 million on a 12-month basis. We'll have owned it for a quarter and 5 weeks, let's say, so whatever the carryover is. But that's going to come at us at a 10% OM rate. So that's going to mix us down. We got some new PLS deals, professional lab services. Generally, those don't create a ton of margin right away. But then you have the other parts of the business. So I'm not going to give you a number yet, but when you put all those things together, we still are confident we can get our OM rate up.

Got it, okay. No, that's broadly helpful. And let's see and hurricanes and all that other kind of good stuff...

Yes, hope hurricanes don't repeat. Hope CrowdStrike...

You don't have the full year weather forecast or trying to play it?

Not yet.

Not yet.

But I'll predict at least 1 hurricane, how does that sound?

Perfect, perfect. So maybe talking a little bit more about Haystack. Can you give us an update on the Haystack commercialization plans? Like where are we in that process? And that would be helpful to get more details there.

Yes. So we're at the very end of what we called our early experience program. We went out and asked clinicians to give it a try so we could really look at our end-to-end processes that start with an order. In order then, you have to do something called block retrieval, get your hands on the actual tumor specimen. You have to make sure before you go commercial that you have pre-authorization processes in place. You have to make sure you have processes to work with patients if there's a large significant bill that comes. We had to -- when Haystack was just a small tiny lab, they had outsourced the whole exome portion of the test. We had to bring that in-house and stand that test up. And so all of those processes have been put in place. We're making some final tweaks to it. And so we're getting ready for full commercial launch. Over 100 clinicians have tried the test. Many of them who've tried it were also using someone else so they can do their own comparison. And we're getting close to that full commercial launch. Now we still have lots of work to do on the reimbursement front. Our lab is in Dallas, Texas. That's in the Novitas MAC. Having said that, a portion of the testing is done in California, which is in the MolDX MAC. And so we're going to work the reimbursement from multiple angles, and the goal is to have it full reimbursement by the end of next year.

Okay. And can you just remind us, so CMS comes and then like the other sort of national payers on the commercial side sort of fall in line after that typically. Can you just remind us what that process is?

Yes. If you can get one of the MACs to cover it, the MACs or lab is located because that's where you're sending, regardless of where the patient is, you're seeking reimbursement where the test is done. If you get one MAC to reimburse, we can then say, yes, CMS is reimbursing for that test. And then you start to approach the Medicare Advantage plans, which should follow the guidance of the CMS and the MAC. Is it a rubber stamp? Maybe not. Will they put in place pre-authorization processes? Probably. But generally, that's how we go about it. CMS first, one of the MACs, get out to the Medicare Advantage plans. And that's generally going to cover, let's just say, 65% of the cases. But just because a Medicare Advantage plan that's attached to one of the large nationals approves it doesn't mean that the commercial side of that same plan will approve it for a 45-year-old patient. And so you have to continue to build up medical evidence that this test is both -- has efficacy along with an economic value proposition.

Okay. No, that makes sense. And then how do we think about the pacing of R&D within Haystack in terms of additional tests that could potentially be run on the same platform? Or I don't know if it's even possible to use like other tests to some external tests. Like how do we think about that opportunity?

Well, the first thing I would say is that the technology, the underlying technology for these MRD tests is certainly not static. And I think you're reading every day about another little start-up in the MRD space. So it clearly says that the technology will continue to move, and we will continue to invest to maintain leadership in this space. So we have this test. It's a wonderful test, but you have to continue to invest in the R&D side. We have a test that covers 50, let's say, cancer genotypes, but we will expand that more and more, okay? So we won't sit still.

Okay. No, that makes sense. If we think about esoteric more broadly, how do we think about the sort of partnering versus building internally versus sort of acquisition-based model? Like how do you kind of decide which bucket [ does something ] if an opportunity falls into?

Yes. So in general, look, Quest Diagnostics is set up, the majority of testing that we do as a company, we go out to one of our strong partners like Roche, Siemens, Thermo Fisher, and the first thing we do is we look into their pipelines. What are you all working on? And I'd like to think we get a preferred view into those pipelines. We also shape their pipelines. We tell them what problems we see, what challenges we see, and we're big customers of all of them. And hopefully, they're fine-tuning their product development pipeline based on what they see broadly and then what some of their biggest customers have to say. So we broadly know what they're working on, number one. So we're always going to try to source it versus build it ourselves. If we can't source it from one of our suppliers, so let's take MRD. Nobody in our supply base had anything in the near term that we were comfortable betting on, okay? Then we look internally and say, do we have the R&D skills and capabilities in this niche area to be able to bring a test to market in some relatively near-term period of time? The answer was no. On brain health on AB42/40, the answer was yes. And that's a test we started to invest in 5, 7 years ago. And we were making continuous investments until -- and we still do, and we released that test in 2023. So that was a test that none of our supply base had. And we asked ourselves, is it something we think we can do ourselves? We have incredible mass spec talent in the company. We have a lot of intellectual property in that space that actually other labs source from us, other developers. So when I say developers, our suppliers source IP from us in the mass spec space. So we're really proud of our capabilities there. So now if we can't source it, if we can't do it ourselves, then we start looking, is there IP that we can gather from an academic medical center that may be working on this or that's when you start looking in the small company space like a Haystack. So that's generally the pecking order that we sort of -- it's that pyramid that we try to follow. Because look, we're not a company that's spending $0.5 billion a year on R&D. We're just not set up to do that, right?

Yes. No, that certainly makes sense. Maybe talking about M&A more broadly. Sort of if we think about LifeLabs, you said most of the $0.10 to $0.15 of accretion in the first 12 months will obviously be in '25, given the broader ownership structure and sort of the ramping. When we think of that, that obviously doesn't count a full year so that it's more like a 7- to 8-month kind of contribution. How do we think about sort of like the full year accretion for 2025? And then like as we're sort of progressing across 2025, where is the real -- what's the real driver of that sort of margin improvement and those synergies as we think about that sort of first year of ownership?

Right. So we said $0.10 to $0.15 for the first 12 months. So I think we could be comfortable saying, and we'll fine-tune this in February, let's just say, $0.15 to $0.20, okay, for a full year because we'll have owned it for a quarter and 5 weeks by the time we hit 2025. Now how do we get the margin rate up closer to the Quest average? The first thing you look at is procurement synergies, procurement savings, right? The simple stuff that you can convert really quickly are some of the more nontechnical things, gloves, hats, gowns, safety, precaution, PPE equipment. That's really easy. And generally, we're buying a lot more of that kind of stuff so our pricing should be better. And maybe once in a while, you find an exception, they were actually getting a better deal. But you bring the 2 teams together, you look at contracts and you instantly make those decisions because you're not really bound by any long-term contracts. You then start looking in your laboratory and your patient service centers, so tubes and needles, there's 2 big suppliers out there, and we look at who's buying what at what prices. Within the laboratory, there's differences. There's differences on how we do women's health care testing versus what they do. We get the teams together. We look at -- make sure everyone is comfortable with the medical side first. But we generally are going to get over a 3-year period. They're going to get -- we're going to get standardized. Now we could change some decisions within Quest Diagnostics. I don't know. We'll see how it comes out. But we are -- we've got 25-plus laboratories in the U.S. I can tell you, we do it all the same way in those laboratories. And so over time, we'll do it all the same way. Some of those contracts, you can't -- LifeLabs can't get out of instantly, okay? So it takes time. They might be in a 5-year agreement. They're only 3 years into it. But that's why we've said it will take 2 to 3 years. The last thing that we look at is just operational know-how. How do they run their patient service centers? How do we do it? How many patients per hour can they process versus what we process? Logistics. Do they have some of the same logistics software for picking up specimens and active route optimization software for their drivers? And again, in the laboratory, it's things like the level of automation that we have in certain areas that they may not have. And so you're bringing operational know-how. Where there's not synergies here versus deals we may do in the U.S. is we're not closing any labs. We're not closing any because there's no operational footprint overlap at all. Now the last piece is LifeLabs was sending work out to other labs. We were getting some of that work. They were referring work out that they did not -- were not able to do in-house. So we'll get some of that. We're getting some of that work already. We were getting it before we owned them. But some of that work was going to other esoteric providers. And obviously, we're going to in-source that, and that represents some savings as well.

Got it. Where are we in the, like, automation journey of some of the testing center -- sorry, the labs? Can we -- how do you think of that, whether you think of that as kind of like it's probably one of those things where it's never done, right?

It's never done.

Never done.

Never done. Always an opportunity. And again, this is an area where our supply base, we continue to push them really, really hard. Look, I'll tell you, labor is still a constraint in the laboratory industry. It's a constraint on the phlebotomy side. Finding qualified people to draw blood, collect urine, it's a challenge, especially in states like we're in right here in Florida, where you have a lot of elderly patients here, frequent lab visits. So even within the patient service environment, we're looking for other novel ways to collect blood and collect urine, right? Things like devices that can attach to the arm. You could be in the waiting room, we stick it on you, and it just -- it's a device by a company called Tasso. So now in the laboratory, unfortunately, we still have 20% of the reqs are coming in on paper. And so we have to -- and so that requires a lot of manual processing. So we continue to work with the offices that are sending us paper. Most of them have EMRs, but for whatever reason, they're not using the lab ordering module and so we work with those folks. We've made some recent investments with our partnership with Roche around what we call front-end automation and sorting. And this is -- all the specimens get dumped into a rack, and it gets sorted for us as opposed to doing that manually. So there are so many opportunities. Copan, the automation and microbiology, about 1/3 of our labs are using it and so we still have lots of opportunity with the microbiology space. So there's still a ton of opportunity. Other AI-assisted platforms, and we'll slowly but surely bring GenAI into this as well.

Nice. Okay, that sounds great. You have an upcoming Investor Day in March, as I'm sure you're well aware. We're thinking about like what should be our expectations going into the event? Like your sort of new long-term targets? Like how do we think about what the goal and sort of what you guys are communicating there?

Yes. So we'll get everybody comfortable in early February in earnings with our 2025 goal. And then we're going to project '26, '27, and '28. Obviously, '25 will get us off to a good start on the revenue growth side. But we'll walk through the segments of the business. We'll spend a lot of time talking about some of these advanced diagnostics where we're making investments. We'll spend time talking on the operations end of our business and where we see more innovation coming from in the laboratory space. So those are the kinds of things we'll discuss.

Okay. Looking forward to it. As we sort of think about the last few minutes here, what's the -- what are the 1 or 2 things that you think that are most misunderstood about Quest Diagnostics as we're sitting here?

Well, I'd first say, let's start at the broader industry level, what's misunderstood perhaps about laboratory diagnostics. One is you got to remember, 80% to 90% of the decisions a physician makes are based off of laboratory tests. They can do a physical exam. They can look at you, they can touch you, they can listen to your heart. But so much information is gleaned when you run these simple, I don't want to call it simple, but blood, urine tests. And look, we strongly believe, as an industry, number one, that there is underutilization of laboratory testing, okay? So that's the first thing I would leave you with. Second, before I get to Quest, I'll talk about the independents. It is truly the independents against some of the others, right? I've never seen another industry where you have independent labs that are getting paid to do the same identical work at a price point that could be half of what somebody else is getting paid for the same identical work. And so we think increasingly, the payer community, we think the payer community should act like Medicare. Medicare pays everybody the same rate, whether you're Quest Diagnostics or you're a mega-hospital, okay? You get paid the same rate. And that's what we believe that the health plan should do. That would automatically mean a lot of that hospital work would come our way because they can't make money at the rates that we get paid at. And we think -- and by the way, that's good for the patient. That's good for the employer. That's good for our overall economy, okay? That's what value is. Finally, with Quest Diagnostics, look, we're -- we will continue to be broad. We're a national company. We're efficient. We will continue to invest in the types of testing that will generate differential growth but are also we -- there's still opportunities in the lab business where lab testing is not the primary diagnostic tool, okay? Think about mammography and breast cancer detection. I honestly think in 10 years, we're going to look back and say to ourselves, what a barbaric process to think that a woman is going to come, have her breasts clamped on a steel plate and we shoot X-ray through that. It's a barbaric process. There ought to be a blood-based test to detect that. And there's other elements where blood and urine is still not the primary diagnostic tool. And those are the areas that we continue to invest in, continue to work on so that lab diagnostics become the primary diagnostic and monitoring tool for disease.

Yes. Maybe one question off to the first point you're making. When does that sort of flip on the payer side with the commercial testing rates? Like what's the trigger there?

Well, it's starting to occur. I think when some of the payers look at these hospitals, it's one thing when you're doing a little bit of outreach work. It's another thing when you are a commercial lab with salespeople, logistics, patient service centers that go well beyond your own geographic vicinity, okay? And when they see that and they recognize it, then they'll start to price that book of business like they do ours.

Okay, that's good. [indiscernible].

And the last thing I would say on that is like we're a believer that physicians should have choice. And with all of these EMRs, whether it's Epic or Cerner, in some ways, that holds the physician back in terms of expressing their choice. Why does it hold it back? Because those EMRs are not configured to allow any choice on who the doctor uses. Now can they still write a paper requisition and can that patient come to Quest? Absolutely. But it's more difficult. It means the results have to be faxed back to the doctor as opposed to sent back electronically. So that's an issue we're going to continue to work from a policy perspective because we believe all physicians should have choice because the patients have choice.

It's a good place to end. Thank you, Jim.

All right, good. Thank you, Elizabeth.