Jim Davis
President, Chief Executive Officer at Quest Diagnostics
Thanks, Shawn, and good morning everyone.
Quest had a strong year in 2022 with base business revenues growing more than 6% in the fourth quarter and 5% for the full year. As we expected COVID-19 testing revenues declined but still exceeded $1.4 billion in 2022.
Our strong performance over the last several years would not have been possible without the commitment and compassion of our nearly 50,000 colleagues who rose to the challenge of COVID-19 while growing our base business. I am incredibly proud of how this team has worked together during an unprecedented period in the lab industry to deliver insights to help create a healthier world.
This morning, I'll discuss our performance for the fourth quarter and full year 2022, then Sam will provide more detail on our financial results and discuss our 2023 guidance.
In the fourth quarter, total revenues were $2.3 billion, earnings per share were $0.87 on a reported basis and $1.98 on an adjusted basis, cash from operations was $334 million. For the full year 2022, total revenues were $9.9 billion, including more than $8.4 billion in base business revenue. Earnings per share were $7.97 on a reported basis and $9.95 on an adjusted basis. Cash from operations was $1.7 billion.
As you saw this morning, we increased our quarterly dividend approximately to 8% to $0.71 per share and increased our share repurchase authorization by $1 billion.
Before discussing additional highlights for 2022, I'd like to share some recent positive regulatory updates. First, Congress delayed Medicare reimbursement cuts under PAMA that were scheduled to take place in 2023, which would have impacted our revenue between approximately $80 million and $85 million. While we are pleased with the delay, we continue to work closely with our trade association to seek a permanent fix to PAMA.
Second, CMS increased Medicare reimbursement for specimen collection fees for the first time in nearly 40 years. This could provide Quest with a benefit of approximately $35 million to $40 million this year.
Regarding COVID-19 testing revenues, while we did see a steady ramp upward in COVID-19 volumes throughout Q4, our volumes have steadily declined since late December. We expect our COVID-19 revenues to be significantly lower in 2023 compared to 2022. We have lowered our prior COVID-19 volume expectations in 2023 from 10,000 to 15,000 molecular tests per day to 5,000 to 10,000 tests per day. In addition, we continue to negotiate coverage and reimbursement policies with commercial payors following the end of the PHE in May.
I will now share some recent highlights in how we are growing this business. In the fourth quarter, we completed our acquisition of the outreach laboratory services business of Suma Health, a large integrated health system serving communities in northeastern Ohio. We also entered into an agreement to acquire select assets of Northern Light Health's outreach laboratory services business located in Maine. We will also provide professional laboratory management services for nine of Northern Light's hospital laboratories along with its cancer center lab.
Our M&A pipeline is strong, including potential deals with health systems, small regional labs, and other capability-building assets. In particular, the funnel of opportunities with health systems, which are facing major margin pressures due to labor challenges and mix shift from inpatient to outpatient care, is very active. Quest can help through lab management, population health analytics, mobile services, and/or by monetizing their outreach business.
In health plans, we continue to gain traction with value-based contracts where we see meaningfully higher growth than with traditional contracts. Also, we've started to benefit from incentives related to these value-based contracts which helps demonstrate the value of these strategic relationships.
With CMS' recent increase in Medicare reimbursement for specimen collections, we've begun discussions with our health plan customers about getting paid appropriately for the phlebotomy services we provide to their members. Higher specimen collection fees enable us to make continuous investment in patient services so their members continue to have the broadest access to high quality and low cost lab testing.
In advanced diagnostics, we generated strong double-digit growth in prenatal genetics and pharma services in 2022. In 2022, we also launched a solid tumor expanded panel as a laboratory-developed test. This 523 gene test relies upon the Illumina TruSight Oncology 500 assay to help oncologists with therapy selection by providing comprehensive genomic profiling of a patient's tumor. This test extends our capabilities beyond tissue pathology to offer faster turnaround time from cancer diagnosis to therapy selection.
Throughout 2022, we continued to make investments to strengthen our bio-informatics capabilities which support some of the faster-growing opportunities of our portfolio, like genomic sequencing services, prenatal and hereditary genetic testing, and pharma services. We also invested in our women's health sales force which will position us well for continued strong growth in prenatal genetics.
We continue to make progress in executing our consumer-initiated testing strategy. Last year, we recorded approximately $96 million of both base and COVID-19 consumer testing. In the fall of 2022, we launched our new digital platform, QuestHealth.com. Consumers have found this to be a simpler, more intuitive way to order lab tests.
Following the launch of our new consumer sight, we began ramping up marketing spend through the fourth quarter. We saw some of the strongest order volumes to date following some Cyber Monday promotional advertising, and we are encouraged by the acceleration of growth in base testing in December.
Shifting to operational excellence, in 2022 we approached our goal of 3% productivity improvements and savings through our Invigorate program. Those savings and productivity improvements did not completely offset the inflationary pressures in our business, as well as the impact of a modest unit price decline. Following the pandemic, we like many companies have faced significant inflation and wage pressures. We are increasing our efforts to drive productivity and expand margins in our base business.
We continue to drive additional productivity improvements with lab platform consolidation and greater use of automation and artificial intelligence. Last year, we began a new automation conversion project in our Lenexa laboratory. This new project builds on what work we've done in our Marlborough and Clifton labs. We've introduced a new microbiology platform that is highly automated and makes use of artificial intelligence to assist with sample analysis. Finally, we've begun to realize savings from the urinalysis platform conversion that we announced early last year.
Filling and retaining our frontline positions continues to be a key priority for us. Although we have experienced higher-than-average turnover in some of our job categories, we have taken actions to stabilize our workforce and improve frontline employee engagement and retention. We expect these actions to help enhance our productivity in 2023. We have also taken actions to reduce our SG&A by approximately $100 million in 2023, including workforce reductions of approximately 1.5% primarily in corporate support functions.
With that, I'll turn it over to Sam to provide more details on our performance and our 2023 guidance. Sam?
