Quest Diagnostics Incorporated (DGX) Earnings Call Transcript & Summary

Thanks, everyone, for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Sam Samad and Shawn Bevec from Quest here with us. Thanks for coming down, guys. Sam, maybe to start, we'll just chat about it a little bit. Just the utilization backdrop is something we hear a lot of questions about. I know you guys get questions as well. It's remained quite elevated. I think everyone thought it was a COVID phenomenon. And then the farther way we get and hanging in at these elevated levels, it doesn't seem all that connected, but maybe just give us a rundown on the utilization, what you're seeing and the expectations for this to remain elevated at least relative to historical levels.

Yes, sure. And first of all, thanks for having us, Patrick. Great to be here. So yes, utilization has been strong now for some time coming out of COVID at first, I think we're a little bit more guarded in terms of thinking, is it catch-up utilization? Is it people that have just deferred testing all during COVID? Is it a temporary thing? And are we going to see it start to come down to kind of pre-COVID levels. It's been pretty resilient and I think there are a number of factors that are feeding into that. So I don't think it's one thing. There isn't a sort of a silver bullet here. Number one is access. We've gotten access in with at least one payer where we had four states that we didn't have access before that we got access to this year. So that's helping in terms of driving more access in more parts of the country. We had access -- exclusive access with another payer also in the East, so that's helped as well. But I think more fundamentally, it's other things that deal with kind of the health of the population and where testing is going. So chronic illness continues to be the increase, unfortunately, for all of us, but I think that's where screening comes in. You've got now screening with really a so-what in terms of what you can do about certain conditions. For instance, early onset dementia. We've got 80 detect where you can do blood-based screening and potentially look at the overall risk of a patient and whether you need to consider therapy after you reflex the imaging. You've got oncology early screening. You've got cardiometabolic risk and cardiovascular risk and screening for that. I think you're also seeing consumer sort of this whole consumer segment really continue to grow and gain traction as well as patients take more ownership of their overall health, and they really want to understand their health better. So we're seeing this whole aspect of wellness and consumer growth, whether it's through our direct channel of westhealth.com or whether it's through some of the partnerships that we're doing as well with other providers that are really gaining traction. So I think you put all these together, really driving to higher than, I would say, traditional utilization, which is really benefiting us.

Yes. Yes. And we can touch on a few of those. I mean, you just mentioned the consumer one there at the end. Can you just talk about that consumer channel? I know you guys have the partnerships with WHOOP, ORA, at least indirect partnerships? How that's tracking? How are those structured to in terms of just marketing the tests, requisition volume contribution? Maybe we could just run down that.

Yes. I mean, first of all, it's a really exciting part of our business. So we talked about consumer a while back when we relaunched our consumer efforts in the direct space. And we said this business can be about $250 million in terms of revenue at some point down the road. And in '21, we reestablished or kind of reenergized our growth into consumer, established this quest health.com. And this business is growing really nicely. It's growing about 35% every quarter year-over-year and approaching now $100 million in terms of top line. So that's the direct questhealth.com, where we offer tests online. And you, as a consumer, as a patient can order the test, you can go to one of our patient service centers, get the blood draw done, get your results as early as the day. So great opportunity for people. It's usually paid out of pocket. Now we have also these collaborations with providers and partners that are really gaining traction as well, and we're very excited about partnering with some key companies there. Function Health is one of them, which, again, they have memberships subscription model that they offer to their patients. And we are the engine behind that. So the patient basically subscribes to function health, and they get referred to testing in one of our -- again, one of our PSCs, and we performed the testing and function then will provide a very comprehensive report to the patient or the consumer. Same with WHOOP and ORA that we announced not too far back, where you have basically the wearable, you have the app. And now it's part of the app, you can order testing with WHOOP,for instance, you can order a test, which is 65 analyze, you pay a certain fee. You get the test done at Quest, and we provide and up actually provides you that report within their app. So think of it, Patrick, as we are the engine behind this. We're the exclusive testing provider for these companies, Him and Hers. Hims and Hers was also one that was announced recently. They do all the marketing. They basically deal with all the consumer aspects with getting paid by the consumer. And we basically get paid by the providers themselves or these partners that offer this either the wearables or the membership.

Yes. Okay. And then in the advanced diagnostics piece, you obviously have the wellness testing, the specialty testing pieces how are those tracking? What's the right way to think about just that contribution to overall revs as well?

Yes. There are really five areas of advanced diagnostics testing that we consider as the high-growth areas of our business. and they are really all growing in the double digits. So when you think about contribution, these are offering a positive disproportionate contribution and really helping in terms of driving, again, higher utilization to the question that you asked at the beginning. So those five key areas are cardiometabolic, autoimmune, women's health, brain health and oncology. And so within each of those clinical franchises, there are these high-growth tests that are really driving and they're now close to about $1 billion in terms of contribution and as I said, growing in the low double -- in the double digits in terms of contribution. So really an important part of our business, helping with our overall mix because these are also usually higher value tests as well.

Yes. Okay. And then maybe the test per rec, I know we talked about that a good amount. Where is that in terms of number of tests per rec growth year-to-date? Where are we on that front? And then that's another one, again, I think people look at the durability and it's held at a pretty high number for a few years here. Is that just a permanent shift now where you guys feel pretty comfortable.

Yes. It's -- I think it's structural. And I think it's resilient and it's got definitely some runway to it. Back to your question about where it was, where it is today, I mean, if you go back to pre-COVID a typical requisition we would see is about 3.8, 3.9 test per rec. Today, fast forward 5, 6 years, we're somewhere in the 4.3, 4.4. So an average requisition now has almost half a test more. to the average person, you hear that, you go, okay, what's the big deal. For us, it is a big deal actually in terms of margin because you're performing a half a test more on each acquisition other than some reagent additional costs, you've got a lot of your fixed costs already covered. So it's actually a pretty good margin lift for us. And some of that is driven by -- some of the things that I talked about with regards to consumer and some of the partnerships that we have where you have some really rich panels that are being done with multiple tests to get an overall colitis scope of a patient's health. So the work that we do with function, for instance, and even in the -- sometimes in the Quest Health space. But it's also driven by advanced diagnostics and some of the additional work that now physicians are basically ordering for patients first, because there are therapies to certain disease states or to certain conditions that there's a so-what again. And second, because it's -- I mean, with chronic illness, aging population, I think physicians are really more focused on underlying health and ordering more testing than they were before.

Okay. And I guess when you put that all together, both the test per rec and in the volume side, how are you guys thinking about this sequentially? Obviously, you gave the 4Q guide, 3Q to 4Q, you have Life Labs. I think that flips organic this quarter. So maybe just kind of give us the bridge on the revenue side for 4Q in terms of how that built up.

Yes. I mean I'll give you a little bit of the seasonality first. I mean, always, we expect that 4Q is a slight dip from -- or is a dip from 3Q. I mean, usually, in terms of typical seasonality. The second quarter is our highest quarter of the year in terms of just the strength of that quarter. Third Q is a slight dip from that. 4Q is usually below 3Q and then first quarter is usually our weakest quarter of the year. And no surprise. I mean 4Q, you've got the holidays. First quarter, you've got usually bad weather and coming out of also the holidays and maybe more sluggish testing. But -- so that typical seasonality usually holds. Now for the full year, we are expecting organic revenue growth to be in the 4.5 to 5. And year-to-date, where organic revenue growth were at 4.8%. So this has been a strong year for us in terms of utilization. We'll give guidance for 2016 when the time comes. But suffice it to say, I think we're seeing some very strong utilization and organic revenue growth.

Yes. And then maybe just the margin side as well. You have some project Nova expenses, we'll get into product Nova a little bit. I think it's -- like you called out the employee cost on the health care side, what's the right way to think about maybe the exit rate on margins? And then I know that's always a debate. It's just the right number to jump off into '26. But maybe we can talk 4Q and then maybe the right buildup.

There's always noise in the margin rates. I mean, first of all, let me emphasize, this year, our operating margin rate is growing from last year. So we're seeing expansion of our operating margin rate. And in fact, if I take you back to our Investor Day comments back in March of this year, we said that we expect operating margin rates to grow between 75 and 150 basis points over the next 3 years, between '25 and '27 in we still stand behind that long-term guidance. In terms of the noise between Q3 and Q4. So in Q3, our operating margin rate was 16.3%. I think we had about a 50 basis point negative impact from employee health care costs. A lot of that was also a catch-up over the course of the year based on claims data and based on information that we get around exact claims, we make the adjustment to really reflect the true cost of employee health care costs, and some of that was a catch-up in Q3. I wouldn't expect that to necessarily repeat in Q4. But we did say that in Q4, we do have some NOVA costs that maybe we didn't have to the same extent in Q3. We signed the agreement with EPIC earlier. We were a bit delayed in terms of when we signed the agreement. So some of those costs got pushed out a bit into Q4. The bottom line, Patrick, when you put all that together, what we said, and I think we called that out on our earnings call is that typically in the pre-COVID seasonality, we usually see somewhere between a 50 to 100 basis point margin rate negative, let's just say, or reduction between Q3 to Q4. So I think that's still in the same ballpark in terms of margin rate progression from Q3 to Q4.

Okay. And then maybe we can touch on Nova and then would love to flow it to '26. But I guess with Nova, maybe just talk about where those initial investments are going. Is there a magnitude we should think about in terms of 4Q relative to the initial expectations? And then maybe when some of the benefits start to show up, we could touch on as well.

Yes. I mean just in terms of overall magnitude of cost around Nova, and by the way, Nova is not all costs. No. As you said, there's a lot of benefits that we see for that project that are going to be, frankly, potentially transformative for our business in terms of how we do things and how we manage order to cash. But in terms of the overall cost, it's somewhere between $250 million to $310 million of onetime costs for Nova. 40% of that is going to be operating expenses roughly is capital expenses. That's the overall cost of the project over the next 6 to 7 years. So that's not next year. In terms of going back to sort of your points around where the costs go, et cetera, what's going to first be impacted. So this is going to be a stage implementation stage implementation across really our entire lab footprint. And we're going to start with our esoteric, what we call our esoteric labs, which is where we perform our advanced diagnostic testing because that's where we need to start in terms of changing the lab information systems and transforming that experience for our lab operations, and then we'll move into our regional lab. And it's not going to be, hey, flip the switch, everything starts together. It's going to be, as I said, stage. We'll turn on one lab after another, and we'll start going through our whole footprint. We're going to transform the patient experience in certain cases in terms of how they get their results. We're going to introduce AI into that also implementation as well. In terms of 2025, Patrick, we said at the beginning of the year that we're going to spend roughly $20 million on NOVA this year. we're not going to spend $20 million. We're spending less than that because, as I said, we were delayed in terms of starting this relationship, but there will be spend in Q4 that I mentioned earlier. We'll guide in early '26 in terms of what that investment looks like for '26. But the 75 to 150 basis points for the 3 years in terms of operating margin expansion that I mentioned, that includes in it the Nova sort of implementation, okay? So we still feel confident that we can increase our operating margin rate with all of the costs that we're undertaking for Nova. Because Nova to your last question, in we expect to start to see benefits from it. benefits in terms of a lot of productivity, reducing denials, improving customer onboarding. So there's a lot of things that we think will improve productivity and cost.

Okay. That's helpful. And then again, obviously, one of the big variables as we look ahead into next year is PAMA, right? I mean you had the I guess, the 1-month delay, you have PAMA versus results. Maybe just give us your breakdown of how you're thinking about does the 1-month delay change anything? Were you surprised by -- there were obviously some numbers thrown around inside that 1 month what does this mean for the probability of PAMA and as we sit here today in December, so I mean it is approaching.

Yes. I was encouraged by the month delay, as we all were, because it does validate that this is still top of mind for both sides of the house for the administration that this is an important potential sort of reform piece on the agenda. And the fact that it was delayed by 30 days gives us some confidence that there could be on the cards a potential delay for all of next year. I would not say there's a really high probability that, that happens. But I do think this gives us confidence that more likely than not, we could see a delay of PAMA again next year. So maybe more than a 50% probability. I'm also still somewhat optimistic that we could see the results at passing. So permanent reform for PAMA. Now less confident of that than a PAMA delay because I think it requires more work for that to go through. But we also see both sides of the house, and we saw more than 40 Congress people actually do support the passing of the Results Act and that put their support behind it. So that gives us confidence that there's some momentum there. Now again, I think it's probably more likely that we see a PAMA delay than that. But -- so we remain optimistic that we can avoid a PAMA cut next year.

Okay. And again, in a hypothetical, obviously, you guys have laid out the $100 million potential impact if it does come back. What's the right way to think about if it does show up the potential offsets? How quickly -- how nimble you can be in terms of maybe the cost side, how much of that $100 million would actually flow through I'm sure, obviously, you guys are prepared for the worst, hope for the best. But what's the view as to what you could offset if the $100 million comes through?

Yes. So we have been doing this contingency planning for a while because, as you said, we're not going to just sit there and hope that this doesn't happen and then have to scramble at if this does happen. We run our business in a very disciplined, rigorous way. We have a lot of operational rigor in our lab. So I wouldn't say that there's low-hanging fruit in terms of our cost base that we're just going to be able to take out this huge amount of cost. But we will offset a portion of the PAMA impact. It's not going to be the majority of the impact. It's not going to be 50% of the impact. If it's $100 million, it's going to be less than that. But we will offset some portion of the impact. How we're going to do it? We're going to focus on a few things. We'll focus on, first of all, some of our support functions that are noncustomer-facing, non-patient facing, not frontline and look to find efficiencies there. Can we find efficiencies through AI to potentially not have to backfill certain roles, keep positions open and potentially allocate certain positions from maybe transactional functions to more strategic functions and be able to find efficiencies that way. could we look at some of our investments. We always have some portion -- not a big portion, but a portion of that's discretionary investments. And could we potentially delay some of those. Nova is not all nondiscretionary. There is a discretionary pacing part to it that we can potentially also manage through some of the slowing down of the pacing of spend. So there's that portion as well. So you put all that together, and that's contingency work that we're doing right now just to be prepared.

Yes. Okay. That's helpful. And then maybe staying on the policy side, you have the One Beautiful Big Bill, One Big Beautiful Bill. And then the ACA subsidiaries as well. Can you just talk through the impacts from those, the potential expiration of the ACA subsidiaries, what that could mean to you? I think you've broken out some numbers before, but it would be helpful just to run through those as well.

I mean you've got the Medicaid cuts, right, that potentially could happen, although we don't see those really impacting our business until maybe late '27, early '28. I think the health care exchange subsidies, if they were not to get extended or in some other framework that got established where they would be preserved. I see that as potentially a 30 basis point impact to our volumes and revenue next year. Am I concerned about it? Not really. I think it's -- we've got some good tailwinds on utilization. But would be an impact, right? That's about 30 basis points. I think by 28, we've sized it to be somewhere close to 50 to 60 basis points. The majority of that being from the health care exchanges with Medicaid being really a small piece of it, it's almost like 10 to 15 basis points of that being from Medicaid. I think -- I mean, on the health care exchanges, Patrick, I don't want to minimize the impact on the average consumer because, yes, some people will be impacted by that. But I think there's been also some data that's shown that the people that have benefited from the subsidies that were established, the latest round of subsidies that might get taken away were less -- lower consumers of health care. And so less of an impact on utilization by eliminating those subsidies as you would otherwise see in the overall population.

Okay. And I guess you put those together, if PAMA comes back, I think at a lot of ifs if we see kind of the ACA impact, is there still -- you mentioned the 75 to 100 bps margin over the course of a few years. do margins still -- are they -- is there room for them to still expand or be flat in that environment? Or if those things go against you, is it a little more challenging?

If PAMA were to come back, I still feel positive that we can expand margins. But that's why we gave the range, right? $75 million to $150 million. I think we'd be definitely on the low end of the range.

And then maybe just around Haystack, obviously, an important one here for you guys, big attractive market. Where are we in terms of that rollout expectations we can get into the expenses and the dilution a little bit. But just in terms of the market opportunity, how do you see yourself set up obviously, some competitors out there already building, again, what appears to be a very large underpenetrated market. How are you thinking about your guys' approach to MRD with Haystack.

Yes. I think you've captured it well. I mean, large underpenetrated market or currently really one key player in that market, but more entrants coming in, including us, I think that market over the next 5 years could be fivefold what it is today. And that's not Sam's estimates. That's, I think, independent estimates, let's say, it could be a $5 billion, $10 billion market over the next 5-plus years. I do think we have a great test and really proud of the test. It's got the lowest limit of detection out there. It's a really highly sensitive test that offers a huge, huge life-saving value to patients. We have made some really good progress, Patrick, on a number of fronts. We did an early launch last year, had some learnings from that, signed up a lot of physicians in cancer centers. We did the launch earlier this year and we've been increasing our commercial presence behind the test as we've worked on reimbursement. So we were very paced and staged in our kind of growth and our progress here and momentum because we wanted to get reimbursement. We applied for PLA codes, Medicare PLA codes earlier. We just got basically a reimbursement level attached to those PLA codes for baseline test at $3,900 and monitoring at $800. And those will go into effect on the first of January in '26. So we'll get Medicare -- start to get Medicare reimbursement. We are working on a technical assessment with MolDX for Medicare Advantage reimbursement as well. As I said, we took our commercial presence from 12 reps and we're going to be closer to 35, 40 reps by the end of the year. So more feet on the street to drive the adoption of this really important test. And then finally, on the evidence generation front, we're -- we've got about 2 dozen trials right now going on with evidence generation across not just colorectal for MRD, but also other indications for cancer. So it's been a very thoughtful staged launch, and we continue to make really good progress.

Yes. And maybe you mentioned the early access program ran a bunch of tests and some great partners there. what were some learnings from that? What's the feedback been to you guys in terms of this test comparing it? Obviously, to your point, there's one large player out there, several others. What's been the feedback from the early users on the test experience.

Yes. I mean, some of the feedback -- I mean, first, some really positive feedback in cases where the low limits of detection have really played a key part in terms of uncovering positive cases where they had negative cases before. And I'm not talking about many cases, I'm talking about a handful of cases that physicians were really surprised with Haystack ability to detect circulating tumor DNA. So really important for patients. We did get some feedback around the overall workflow, the manual nature of the workflow and the fact that we needed to implement a solution called Epic ORA with oncologists to manage the whole workflow and in the physician office. And that's something that we're investing in right now. Got more and more experience also with reimbursement and what it's going to take to get reimbursement. And so that's why we went through the reimbursement channel with the MAX and now with getting to the PLA code level. So I think there's been some good learnings that have -- we've done -- we've paced in a very, as I said earlier, a methodical way.

Yes. And in terms of driving that next leg of adoption? Is it the reimbursement side where these doctors want to see the tests get paid and then they'll start kind of running more volumes? What's the feedback you hear in terms of the driving the next big step up on the ramp and the potential revenue.

Yes. I mean, reimbursement is a part of it. I think you also have to be very disciplined in terms of your operational rigor something that I would argue we do better than anyone. I think you have to -- I mean, listen, commercial focus and commercial sort of just drive is going to really matter here in this in this space as well as making sure that you educate physicians on the nature of this test. The last piece I would say is evidence generation. I mean that's going to be critical. The more evidence you can generate, the more you can provide data to some of these oncologists, the more you're going to get adoption. But today, Patrick, I mean, we've got almost, I'd say, probably still about more than half of oncologists out there have never tried MRD. And so there's still a tremendous opportunity to expand in that market as well because these are oncologists that have never tried it. It's not like they've tried some other tests out there.

Yes. And then in terms of the dilution, I think it ended up being at $0.35, $0.40 this year. I think the hope was improved maybe as the year went and obviously, again, maybe the revenue got pushed out a little bit. How do you think about the progression? Is it purely tied to when the revenue starts to ramp, the dilution just eases? And it's that simple. Is there a revenue number where it's -- once we hit this run rate, it's breakeven, maybe just kind of frame up the P&L tied to Haystack?

Yes. I mean dilution this year is going to be roughly on pace with what it was last year. As I said, we've made -- we've been very careful to manage dilution, but at the same time, to not shortchange the test in terms of the potential for more adoption. So we've increased commercial presence. We've built this workflow and this Epic ORA system that's going to help us in terms of managing the workflow. I think next year, we're still going to expect it to be dilutive. It's going to be potentially less dilution than what we have this year. You're right, there is a certain level of volume that you have to get to before you can break even on this test. And our goal is that by the end of next year that we would get to breakeven in terms of -- not for the full year, but at some point towards the end of next year that we break even on this test. But we also have to be mindful of the fact that we need to continue to drive adoption and not shortchange the investment on it. Some of it relates to clinical trials as well and evidence generation that we do. But I mean, you and I both know about sort of the sequencing cost environment? And what you do know as well is that until you have a certain level of volumes, you can't really bring down the cost of testing sufficiently because you need scale. You need volumes. And that's something that will happen as you get more and more volumes, you can fill these sequencers, you're going to get better gross margin, and you're going to get better profitability as well.

Okay. And maybe last one on Haystack, just on the indications to your point, you mentioned getting out beyond colorectal, any time lines around that? And then how important are guidelines like NCCN and those types? And how close are those in terms of being on your radar?

Yes. I think no specific time lines on the other indications. I mean we are focusing first on colorectal. As I said, we're working on a number of trials around colorectal and other indications down the road. We're focused on breast. We're focused on head and neck. We're focused on the use of MRD and immunotherapy we're focused on. So there's a number of indications that I think we will prove out Haystacks use in. With regards to NCCN, they are important. I mean -- but I think that work is being done by the number of players in the space, not just us. The more there are evidence-based data that support the use of MRD and post-resection cancer therapy. I think the more there is a likelihood that this gets added to the guidelines under NCCN. And I think it's important. It will take a while.

And then you guys also have some cancer screening partnerships. I mean the Guardant one came out a few months ago. I guess how do you balance partnerships with external cancer screening companies developing your own tests in-house potentially in the future if you get into the screening world? What's the right way to think about just how you think about that screening environment and the partnership side versus the internal.

Yes. I mean, this applies to screening, but it also applies to our approach in general to how we sort of build the menu, right, and build the menu across our thousands of tests. We look at, I would say, three areas. Number one, organic investment and developing tests organically through our own R&D. AD detect is a great example of that where this test was developed in-house, and it's paying dividends for us. Then another area is really either in-licensing or acquisition. We in-licensed certain tests from key providers and key companies that we partner with, and we've acquired other tests. Haystack is a really good example of that. And I think the third area is where we don't have a test either that's organically developed or in-licensed or acquired it's partnerships where we'll partner with certain other companies to basically provide a service for them and get paid for that service, but really enable the growth of that test in the market. So the partnership with Guardant is one example of that, where we're partnering with them on their colorectal screening assay, where we get compensated for signing up physicians for promotion work that we do. We have the test on our menu. We get paid for the draws that we do in our patient service center. So today, we don't have a colorectal cancer screening assay. That doesn't mean that we won't have one down the road. We're actually partnering with a company called Universal DX on a colorectal early cancer screening. But until such time happens as we launch that, we're partnering with Guardant. We partner with GRAIL as well. And we also do an important service for them. We sign up physicians and we have them on our menu, and we do blood draws for them. So we have this -- because we don't have an MC, a multi-cancer early detection test right now.

Yes. And I guess in terms of the Haystack acquisition itself, it was a bit of a one-off for you guys in terms of buying pre-revenue dilutive asset. You guys have been very consistent in buying up outreach labs, hospital labs. Should we expect that to be a one-off? Is there still an appetite for those types of deals? I mean since then, you've done a bunch of good kind of volume acquisition maybe we can talk both the pipeline on the reference lab hospital side? And then again, is there an appetite to do other one-off tests? Or should we think about kind of those core deals?

Yes. I mean, I will start with what are our kind of key criteria -- financial criteria for deals because I'm usually the guy that's like pounding on the table going do they meet those criteria. Number one, is to exceed 10% ROIC by year 3. And number two, and those are not like either or they're and. Number two is to be EPS accretive in year 1. So the majority of the deals that we do, Patrick, have to meet those two criteria. The Haystack didn't because it's a pre-revenue key strategic tests that we thought has a pretty incredible potential market. But the majority of the deals that we do are going to fit into those two criteria. Now again, it has to have like that haystack profile for us to really deviate from those two criteria. But I would say in terms of the pipeline, to your question, the majority are going to fall into this outreach physician book of business acquisitions that are most, if not all, will fit those two criteria. You have some that are more independent lab driven, where we think there's an opportunity to acquire an independent lab. And then the capability building acquisitions that sometimes are less obvious are ones that we look at much more carefully and much more selectively. But again, with the lens of, they have to meet those two criteria unless there's like a really market-driven reason.

And how is the pipeline today in terms of the acquisition side? Has the PAMA threat brought people back to the table? Is that irrelevant in terms of the deal discussions? How is the pipeline looking?

The pipeline is good and healthy. I mean, I think with a lot of emphasis on the physician outreach books of business that we buy from hospitals, from health systems. I don't think PAMA has made a huge difference, frankly. I think it's -- and I don't think even like the legislative changes and the One Big Beautiful Bill have made a big difference yet. But I do think with an eye towards potential challenges for the community-based health systems, other health systems down the road because of Medicaid cuts, that actually might drive more hospitals to consider selling those outreach books business to us as well. When you think about the tail on that opportunity or at least what's available in terms of opportunities in that space, there's still tons of health systems where we think we can partner, acquire those books of business. So I think the pipeline is pretty robust.

Okay. And maybe just kind of put it all together in terms of some of the growth drivers, utilization, we didn't talk a ton about pricing, but pricing seems like it's still on your side, which is nice. I guess when you look to '26, it sounded like your earlier comments, Sam, was this momentum should continue. I mean any variables to call out as we think about the growth side, obviously, the LRPs, I think that mid-single-digit type top line growth sounds like you're confident, but any variables to call out as we think about next year?

No. I mean I'm confident because we've got good momentum in our business and some good tailwinds. And so maybe to describe or paint out some of the tailwinds and headwinds, Patrick. So on the tailwinds, listen, we talked about it a lot, but utilization continues to be a tailwind. And I think there's some structural elements to that, that will continue to drive growth and healthy above pre-COVID growth. I think the consumer momentum that we're making is really encouraging, right, whether it's our direct business, questhealth.com or it's the partnerships that we have with other providers that the partnerships and collaborations that we have that offer these tests to their consumer base, and we are the engine behind that. I think that's a real positive. I think our advanced diagnostics menu and those high-growth areas that I talked about, that's a real positive. I think the -- just the general sort of emphasis on early screening, whether it's early onset dementia, whether it's cancer, whether it's cardiometabolic genetic risk, all of these things, I think, is a key tailwind as well. Another tailwind that maybe to get a little bit more specific and more transactional. But next year, we do have two portions of our business that are driving some healthy growth on the top line. One is our collaboration with Corewell on the collab side, which is basically a professional lab services side, where they outsource their lab operations where we run their lab operations, okay, across. Eventually, it will be 20-plus hospitals that we run their lab operations. That next year is about a $200 million contribution to our top line in terms of growth. So that's a pretty healthy number. Now margin rate on that business next year is going to be pretty low. It's in the low single digits, but that grows over time. As you know, with all of our PLS relationships, usually, we start out in a low single-digit margin rate. And then as we build that business it gets to somewhere in the 10% to 12% range. But that's a tailwind on the top line, margin rate, not so much. Then we have the Fresenius business that we talked about this year, where we acquired their book of business of external clinics that they service and also where they send their kind of a reference relationship where they sell send their Fresenius clinic work to us. And we do water testing in addition to clinical testing. That's almost $100 million top line lift as well. It starts out at lower than average margins, but it builds over time. So those are two important tailwinds as well. On the headwind side, I mean I talked about Nova. That will be -- we'll ramp investment in Nova. So from a profitability standpoint, it's an impact to profitability. I think you have -- obviously, PAMA is a potential headwind, but hopefully, we can set that aside. January and know that it's going to be delayed. But for now, it's still a potential headwind. And I mean I think then there's like the usual market-based or sort of economic-based factors like inflation, for instance. We're always keeping close eye on inflation, wage-based inflation, but I also think we have a lot of good momentum on our programs like Invigorate to help offset some of those headwinds like inflation, for instance, and cost of labor.

Yes. And maybe last one, just a minute left here. Just on the pricing side, any change in tone from the conversations with payers? I mean things are obviously getting tight on the payer side. So just curious if your discussions, I know they roll in terms of when each one comes up. But any change in tone there one the paying side?

Not really, not materially. I mean it's -- I think it's with the payers, it's all about the partnership and it's all about the value that we bring to them. And the value that we bring to them is that we do a great service at a very at a lower cost and lower cost than they would reimburse to hospital labs and health systems. So it's all about the redirection and the ability to save them important dollars by redirecting some of that work to our own labs. And so I think the tenor and tone of these conversations is still very positive.

Yes. Okay. All right. Sam, Shawn, thank you guys so much. Appreciate it.

Thank you.

Thank you, Patrick.