LabCorp sees flat Q3 earnings as test payments may pose issues

One-time costs hit LabCorp's Q3 income
One-time costs hit LabCorp's Q3 income

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Lab service provider LabCorp said Friday its third quarter net income was nearly the same as the identical quarter in 2012 because one-time restructuring and other costs offset a slight increase in revenue.

The company changed its guidance for the full year, saying it now expects adjusted net income of $6.95 to $7.05 per share and revenue growth of 3 percent. That projection takes into account a negative impact from Medicare payment reductions and molecular pathology payment issues.

Brad Hayes, EVP, CFO and Treasurer of LabCorp - who also announced plans to retire in 2014 on Friday – said in the conference call that cash flow remains solid despite delays of payment and denials of coverage from payers for existing tests after implementation of recently adopted molecular pathology codes.

According to a July letter from the College of American Pathologists​ to the US Centers for Medicare and Medicaid Services, which set new rates for some molecular pathology tests earlier this year, "many of the coverage decisions would deny beneficiaries’ access to molecular testing that is necessary for diagnosis and patient management​." Other issues on how and why the rates were set were also raised in the letter.

CEO and chairman David King said the company has yet to quantify the impact of the molecular pathology payment issues, which involves “multiple payers​,” mostly “because we’re hoping to see it improve​.” He added that the company may have the “opportunity to recoup the payments we haven’t received​.”

King added that the “acquisition pipeline remains attractive​,” noting “they have historically been important to expand our test menu and footprint​” when an analyst on the call asked how large of an acquisition the company might be interested in.

According to Zacks Equity Research​, the company is focusing more on the high-margin testing business, which is expected to contribute 45% of total sales in the next three to five years. The company’s long-term alliance with Bristol-Myers Squibb may also be reap an upside.

Analysts previously said that that deal could also pose issues for Icon moving forward​ as LabCorp was named the preferred provider of central lab services for B-MS.

LabCorp on Friday also announced that its Board authorized an additional $1B share repurchase program.

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