Laboratory of America Holdings Earnings Call Insights: Payers and Molecular Testing

Laboratory Corporation of America Holdings (NYSE:LH) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Payors

Robert Willoughby – Bank of America Merrill Lynch: Dave, what recourse do you have to get payment back from some of these payors that denied you, and maybe more importantly, what’s a reasonable time frame for recovery?

David P. King – Chairman and CEO: Let’s separate it into the commercial, the Medicaid and then TRICARE. So with commercial payors, this is a negotiated process. As we mentioned, many of them incorporated these payment policies without the realization of the impact that it would have on the claim filing process, a lot of paper claims, a lot of additional information and the impact on patients, and so most of it is just a question of sitting down and talking with them, explaining the circumstances and then we get the coverage issues resolved. With the Medicaids, a couple of the key Medicaids still have not priced the codes, so they’ve told us they’re going to pay for the tests but they still haven’t priced the codes and these are a couple of sizable Medicaids, and we have a commitment that they will price the codes within the third quarter, but obviously claims are not going to be paid until the codes are priced. There are a couple of Medicaids that have said they are not going to pay for this testing even though they have paid for it in the past and they have covered it in the past because either they call it new tests or because of budgetary constraints. On those, it’s beating with the Medicaids, it’s getting ACLA involved, and ACLA is fully engaged in this as are our other industry colleagues and it’s also potentially legislative and executive remedies in those particular states. Finally, with TRICARE, initially, TRICARE placed cystic fibrosis on its no-pay code list. Our understanding is that after some inquiries from us and others, that the code is off the list but it still hasn’t been priced, so we’re back in the situation that we have to wait for them to price the code. So as you can tell from that discussion, the timing is somewhat uncertain. We do expect the — we’re optimistic that the commercial ones, for the most part, will be resolved within the year. Whether some of the governmental ones go over into next year, we just have no way of knowing, and that’s part of the reason we say as these get resolved, they provide additional upside to the guidance because we’ve incorporated the view that we stated here into how we think about guidance for the rest of the year.

Robert Willoughby – Bank of America Merrill Lynch: Okay. And has this triggered, from your standpoint — I mean, other labs are seeing this as well, you have this factor plus some of the cuts and proposals going forward. I mean, how is this changing the M&A pipeline for you? Is it too early to call at this point? Or are you seeing more activity as a net result of this?

David P. King – Chairman and CEO: I think it’s a little bit early to call, but the pipeline continues to be quite robust and there are good opportunities out there for us in a variety of areas. When you think about nonpayment for molecular codes, you think about cuts to 88305. There are a number of either specialized laboratories or laboratories with broad exposure to Medicare in these payment areas that are either thinking about entering the acquisition market or are already in the market.

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