Quest Diagnostics 2015 Annual Report Download - page 56

52
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Our Company
Diagnostic Information Services
Quest Diagnostics empowers people to take action to improve health outcomes. We use our extensive database of
clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors
and improve healthcare management. Our diagnostic information services business ("DIS") provides insights through clinical
testing and related services to patients, physicians, hospitals, accountable care organizations ("ACOs"), integrated delivery
networks ("IDNs"), health plans, employers and others. We offer the broadest access in the United States to diagnostic
information services through our nationwide network of laboratories, Company-owned patient service centers and
phlebotomists in physician offices. We are the world's leading provider of diagnostic information services, which includes
providing clinical testing services such as routine (including drugs-of-abuse) testing, gene-based and esoteric testing, and
anatomic pathology services, as well as related services and insights. The Company provides interpretive consultation with one
of the largest medical and scientific staffs in the industry. Our DIS business makes up over 90% of our consolidated net
revenues.
The clinical testing that we perform is an essential element in the delivery of healthcare services. Clinicians use
clinical testing for predisposition, screening, monitoring, diagnosis, prognosis and treatment choices of diseases and other
medical conditions. The United States clinical testing industry consists of two segments. One segment, which we believe
makes up approximately 40% of the total industry, includes hospital inpatient and outpatient testing. The second segment,
which we believe makes up approximately 60% of the total industry, includes testing of persons who are not hospital patients,
including testing done in commercial clinical laboratories, physician-office laboratories and other locations, as well as hospital
outreach (non-hospital patients) testing. We believe that hospital-affiliated laboratories account for approximately 35% of the
second segment, commercial clinical laboratories approximately 53% and physician-office laboratories and other locations
account for the balance.
The clinical testing industry is subject to seasonal fluctuations in operating results and cash flows. Typically, testing
volume declines during vacation and major holiday periods, reducing net revenues and operating cash flows below annual
averages. Testing volume is also subject to declines due to severe weather or other events, which can deter patients from
having testing performed and which can vary in duration and severity from year to year. Additionally, orders for clinical testing
generated from physician offices, hospitals and employers can be affected by factors such as changes in the United States
economy and regulatory environment, which affect the number of unemployed and uninsured, and design changes in healthcare
plans, which affect the number of physician office and hospital visits.
Diagnostic Solutions
In our Diagnostic Solutions ("DS") businesses, which represents the balance of our consolidated net revenues, we
offer a variety of solutions to insurers and healthcare providers. We are the leading provider of risk assessment services for the
life insurance industry as well as a leading provider of central laboratory testing for clinical trials (see discussion below
regarding the contribution of our clinical trials testing business to a newly formed joint venture effective July 1, 2015). In
addition, we offer healthcare organizations and clinicians robust information technology solutions and diagnostic products.
2015 Highlights
Our total net revenues of $7.5 billion were 0.8% above the prior year. The contribution of our clinical trials testing
business to the clinical trials central laboratory services joint venture, Q2 Solutions, negatively impacted total net revenues by
1.2%. DIS revenues of $7.0 billion were 1.3% above the prior year. DIS volume increased 1.2% compared to the prior year.
DIS revenue per requisition increased 0.1% compared to the prior year. DS revenues decreased by 6.1% compared to the prior
year. The contribution of our clinical trials testing business negatively impacted DS revenue by approximately 17%. Income
from continuing operations attributable to Quest Diagnostics' stockholders was $709 million, or $4.87 per diluted share, which
benefited from the gain on the contribution of our clinical trials testing business to Q2 Solutions and recognition of a deferred
income tax benefit associated with winding down a subsidiary. These benefits were partially offset by charges on the
retirement of debt and related refinancing charges, restructuring and integration charges and other costs.
QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K