Labcorp’s Lab Growth Surges as $125 Million Reimbursement Risk Looms

Key Points

• Labcorp reported strong third-quarter results: Revenue rose 7%, adjusted EPS increased 14.5%, and margins expanded 60 basis points. Strength in central laboratory services drove growth, and the company raised the midpoints of its revenue and adjusted EPS guidance.
• A potential $125 million reimbursement impact looms in 2027 if proposed PAMA changes take effect as designed. Labcorp is evaluating offsets, including business growth and efficiency savings, and raised its annual LaunchPad savings target to $125 million–$150 million.
• Labcorp expects the BioReference acquisition to close around mid-2027 for about $722 million in cash. The acquired business is expected to generate roughly $215 million in first-year revenue and add $0.15 to adjusted EPS after costs.

Labcorp NYSE: LH Chief Financial Officer Julia Wang said strength in the company’s central laboratory business and diagnostic testing helped drive third-quarter growth, while management prepares for a potential reduction in government reimbursement rates in 2027.

Speaking at the UBS Global Healthcare Conference, Wang said third-quarter revenue rose 7%, margins expanded by 60 basis points and adjusted earnings per share increased 14.5%. Labcorp raised the midpoints of its revenue and adjusted EPS guidance by $65 million and $0.18, respectively, following the results.

Wang identified central lab services as the biggest positive surprise. Revenue in the business increased 11.3% on an organic, constant-currency basis in the quarter, primarily because of underlying demand, with a smaller benefit from customer study starts that occurred earlier than expected.

Diagnostics Growth and Specialty Testing

Central lab services revenue grew about 8% on an organic, constant-currency basis in the first three quarters. Labcorp raised its 2026 outlook for the business to high-single-digit growth on the same basis, Wang said. The broader Biopharma Laboratory Services segment posted a book-to-bill ratio of 1.13 for the quarter and 1.10 over the trailing 12 months.

In Diagnostics, third-quarter organic revenue grew 4.4%, including a 3.1% contribution from volume and 1.3% from price and mix. Wang cautioned against drawing conclusions from a single quarter, saying the contributions can vary over time. For the full year, the company expects Diagnostics revenue growth of 5.9% at the midpoint of its guidance, with organic growth as the main driver.

Wang said specialty testing remains a focus, both for its direct growth and its ability to generate demand for other tests. Esoteric testing accounted for about 42% of Diagnostics revenue in the second quarter, up from 38% in the first quarter of 2024. Labcorp has not set a specific target for that mix, she said.

The company also expects the number of tests performed per accession to remain a growth and margin tailwind. Wang said incremental tests can use existing collection, transportation and reporting infrastructure, while factors including an aging population, diagnostic innovation and Labcorp’s own strategy could support further increases.

For 2027 through 2029, Labcorp expects annual organic revenue growth of 3.5% to 5.5% companywide and 2.5% to 4.5% in Diagnostics. Its long-term outlook also calls for 1.5% to 2.5% in revenue growth contribution from acquisitions.

Reimbursement Risk and Acquisitions

Wang said Labcorp estimates a potential $125 million impact to 2027 revenue and adjusted operating income before mitigation if reimbursement changes under the Protecting Access to Medicare Act, or PAMA, are implemented as currently designed. The estimate relates to traditional Medicare and Medicaid business.

Wang criticized the preliminary fee schedule as unrepresentative of the commercial market and said the final rates would help determine the potential impact. She said most of Labcorp’s commercial contracts are no longer tied to the CMS fee schedule, though certain third-party contracts could experience a manageable knock-on effect.

The company is considering several ways to offset the impact, including Diagnostics growth, its biopharma business, acquisitions and efficiency initiatives. Wang said Labcorp is increasing its annual savings target under its LaunchPad program to $125 million to $150 million beginning in 2027, from a historical target of $100 million to $125 million.

Wang reaffirmed Labcorp’s outlook for margin improvement of 75 to 150 basis points by the end of 2029, but said PAMA’s implementation as currently designed would make margin growth more challenging in 2027. She also said the company views the RESULTS Act as a long-term solution for the industry and is awaiting a Congressional Budget Office score.

On acquisitions, Wang said Labcorp expects to pay about $722 million in cash for the announced BioReference transaction, with an earn-out tied to revenue from the 4Kscore test. The deal is expected to close around mid-2027, subject to regulatory approval and customary conditions. After closing, Labcorp expects the acquired business to generate about $215 million in first-year revenue and contribute $0.15 to adjusted EPS after costs, including interest.

About Labcorp (NYSE:LH)

Labcorp NYSE: LH, formally Laboratory Corporation of America Holdings, is a global life sciences company that provides diagnostic testing and services to patients, physicians, hospitals, employers and other health care organizations. Its offerings include routine and specialty laboratory tests, anatomic pathology and genetic testing. The company also supports pharmaceutical and biotechnology companies with laboratory services for drug development and clinical trials, including testing and analysis used in research and clinical studies.

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