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New Alliances Aid Quest Diagnostics Despite Reimbursement Woes

Urmimala Biswas

On Jan 24, 2020, we issued an updated research report on Quest Diagnostics Inc. DGX. As part of its two-point strategy, the company has been focusing on areas with high potential. However, overall soft industry trends inducing a low volume environment persistently affected Quest Diagnostics.

Shares of the company have outperformed its industry over the past year. The stock has rallied 26.4% against a 15.2% decline of the industry.

In the last-reported quarter, although Diagnostic information service revenues registered a mere 3.7% increase, three sequential quarters of top-line improvement after a constant downturn over the last many quarters can be considered a good sign of recovery despite significant reimbursement pressure related to PAMA.

Quest Diagnostics Price

Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated price | Quest Diagnostics Incorporated Quote

The company is currently refocusing on its diagnostic information services wing and disciplined capital deployment. Its acquisitions and collaborations with hospitals and integrated delivery networks consistently act as major catalysts. We are upbeat about the company’s Preferred Network partnerships with UnitedHealthcare and hc1.

UnitedHealthcare is helping shift the testing volume to high-value laboratories like Quest Diagnostics from high-cost hospital and out-of-network labs. This apart, it will make the lab savings program available for self-insured employer groups beginning 2020.

In terms of productivity ramp-up, the company has been using digital technology to enhance customer experience, drive growth and reduce carbon footprint. Quest Diagnostics now has more than 8.2 million patients to its credit, who are now using MyQuest digital platform for making appointments and receiving test reports.

Further, the construction of its new flagship laboratory in Clifton, NJ is well underway. The company expects the lab to be operational in 2021. These efforts are directed toward boosting operational excellence for meeting the cost of wage inflation and reimbursement pressure.

On the flip side, Quest Diagnostics is currently facing several reimbursement issues. Also, a rise in patient concession along with certain reserve adjustments dented revenue per requisition. This apart, escalating costs and a tough competitive landscape raise concerns.

The stock currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

A few better-ranked stocks from the broader medical space are Haemonetics Corp. HAE, Hill-Rom Holdings, Inc. HRC and Medtronic plc MDT.

Haemonetics currently has a Zacks Rank #1 (Strong Buy) and a projected long-term earnings growth rate of 13.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hill-Rom’s long-term earnings growth rate is estimated at 11.7%. The company currently carries a Zacks Rank #2 (Buy).

Medtronic’s long-term earnings growth rate is expected at 7.4%. It currently has a Zacks Rank of 2.

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