A Quest Diagnostics Inc. ice chest with completed test swabs sits in a trailer at a Contra Costa Health Services Covid-19 test site in Concord, California, U.S., on Thursday, July 9, 2020. California, once lauded for its success in tamping down the virus, is dealing with a record surge of cases and hospitalizations. Photographer: David Paul Morris/Bloomberg (Photo: David Paul Morris/Bloomberg)

Quest Diagnostic says that its life insurance underwriting exam unit is still suffering from the COVID-19 quarantine rules, but that ordinary medical testing — “base testing” — has recovered to about 90% of normal levels.

Executives at the Secaucus, New Jersey-based laboratory services giant talked about life insurance testing, base testing and COVID-19 testing activity today, when they were going over second-quarter earnings with securities analysts.

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Quest processes medical lab tests for about one-third of all U.S. adults every year.

The second quarter ended June 30.

The company is reporting $193 million in net income for the latest quarter on $1.8 billion in revenue, compared with $239 million in net income on $2 billion in revenue for the second quarter of 2019.

Quest has been doing better than executives had expected, and well enough that the company has reversed most of the furloughs the company imposed in an effort to conserve cash.

ExamOne

From the perspective life insurers, and life insurance agents, the hear of Quest may seem to be the ExamOne life insurance underwriting paramedical exam business.

The unit sends an army of examiners out to collect samples of life insurance applicants’ fluids.

In recent months, many life insurers have boasted of efforts to find ways to do without samples of applicants’ fluids in a time of social distancing.

When a securities analyst asked company executives about Quest units that have continued to have hiccups, Steve Rusckowski, the chief executive officer, mentioned ExamOne.

“Our life insurance business, frankly, that’s down considerably,” Rusckowski said. “We haven’t seen a big recovery there.”

COVID-19 Testing

 

Since January, Quest has gone from learning what COVID-19 is to processing about 8.5 million saliva and throat swab “molecular diagnostic” samples. The molecular diagnostic tests indicate whether people have active bits of the virus that causes COVID-19 in their bodies.

Quest has also processed about 2.5 million of the “serology tests,” or the tests that detect whether people have antibodies for the virus that causes COVID-19 circulating in their blood.

Rusckowski said Quest has processed about 20% of all of the COVID-19 tests completed in the United States.

The company can now process 130,000 molecular tests per day, on a good day, and it hopes to increase capacity to 150,000 per day in the next couple of weeks, Rusckowski said.

The Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare and Medicaid, has helped set the COVID-19 test pricing level, by agreeing to pay Quest and other labs $100 per molecular test.

The federal CARES Act has also provided Quest with $65 million in financial support, according to Mark Guinan, Quest’s chief financial officer.

The commercial health insurers, or “payers,’ “pretty much fell in line with the Medicare reimbursement rates,” Guinan said.

Some state Medicaid plans are paying less than $100 per COVID-19 molecular diagnostic test, “but, for the most part, we get that price from everybody,” Guinan said.

Eventually, CMS may adjust its prices, but, once that happens, Quest will still take the position that commercial plans should pay at least as much as Medicare, Guinan said.

“It will be very transparent with what our costs are, and the continued importance of the test,” Guinan said.

“Base” Testing

For financial professionals and insurers trying to figure out what might be happen to ordinary health care, and to the economy in general, one key indicator is what’s happening with Quest’s ordinary, non-COVID-19-related testing activity.

In part because of health care providers’ moves to minimize the number of routine and elective procedures performed, base testing volume was more than 50% lower in April than in April 2019, Guinan said.

As states began to open up, the year-over-year base activity gap narrowed to about 30% in May, and to the “high single digits” in June, Guinan said.

Since early July, when increasing COVID-19 hospitalization rates led some states to roll back reopening efforts, “we have seen a slight softening in our base business,” Guinan said.

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