Good morning, ladies and gentlemen. Please welcome Sean Bevec.
Thank you, and good morning, everyone. Welcome to Quest Diagnostics 2018 Investor Meeting. My name is Sean Bevec, Vice President of Investor Relations. Before we get going with the program this morning, we'll read through our Safe Harbor disclosure. The statements in the following presentations that are not historical facts may be forward looking statements.
Readers are cautioned not to place undue reliance on forward looking statements, which speak only as of the date they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers or strategic partners and other factors discussed in the company's most recent filed annual report on Form 10 ks and in the company's subsequently filed quarterly reports on Form 10 Q and current reports on Form 8 ks, including those discussed in the business, risk factors, cautionary factors that may affect future results and management's discussion and analysis of financial condition and results of operations sections of those reports. With that aside, let me briefly run through our agenda for this morning. First, you will hear from Steve and Mark, who will provide some perspectives on our financial outlook as well as our 2 point strategy. We'll follow that with the first of 2 Q and A sessions.
We'll then have a 20 minute break. After coming back from the break, you'll hear from a number of Quest Diagnostics' senior management team who'll provide more color and detail on our 2 point strategy. And then we'll end the morning with a final Q and A session. So with that, I'd like to invite Steve Ruszkowski, our Chairman, President and CEO to the stage.
Thanks, Sean, and good morning, everyone. Thanks for joining us, and we're excited to be in front of you to share with you the plans we have for the future. And we've got a good morning for you. You had an opportunity to see some of the demos outside. If you haven't done that already, please do that at break.
They're pretty exciting, and we'll speak to some of that in our presentation. So you'll hear this morning an update on our 2 point strategy. We've been working on growth and we've been working on operational excellence. And with that, you'll hear about all the different capabilities we have and also what we've been executing. You hear about what we've done well and also where we stumbled.
2nd is we will also share the opportunities we see in front of us. Clearly, access is a big change for us. We see an opportunity to consolidate in a very fragmented marketplace and we actually have a brand that is second to none. So you put that together and we believe that we can grow the top line and the bottom line going forward. And then finally, we just updated last night our outlook for the future.
For the next 4 years, we believe we can grow 3 percent to 5% and grow our earnings mid single digits. So you'll be hearing some of the depth from the team in a few minutes. They'll take you through a lot of the detail and Mark and I will do the beginning of that. But before they get up, I'd like to share a couple of facts that's really important to say what's changed going forward. Well, one of the big things that has changed is access.
We have not had as good access with our relationships with our health care insurance partners for over a decade. We're picking up over 40,000,000 lives. That is a fundamentally big change for us as we enter 2019. Point number 2 is this marketplace is going through fundamental change, I would say health care overall and leader. Those of you that have followed us or have invested us in the past know that one of our strategies is to buy about 1% to 2% of consolidation growth over the past.
We've done that. We're north of that this year and we plan on being north of that going forward. So what we shared in the note last night is in fact we do see an opportunity to be greater than the 2% going forward with consolidation opportunities and our pipeline has never been richer. So those two facts alone actually gives us confidence why we believe the earnings and the top line can grow. Now with that said, we have just announced a guidance change for 2018.
We intentionally did that last night, so we had tied the digested. And so what we'd like to do is go through the numbers and Mark will do that with you. We'll clear the 2018 topic. We'll talk about our future projections. I will talk about where we are with our executing our strategy.
And then Mark and I would do a question and answer. So with that, Mark, why don't you come up?
Thanks, Steve. So I'll start out with what we said 2 years ago. We told you that we believed we could curl our revenue at a compound growth rate from 2017 to 2020 at 3% to 5% and to grow our earnings, not our earnings per share at mid to high single digits. What we've done on the revenue side is missed on the low side. When you look at that CAGR to get to the low end of the 3 to 5, it's about $75,000,000 Clearly, it's driven by our performance this year.
If you look at the recent guidance revision, about 2 thirds of that is related to the change that we just made. And I'll address that in just a minute. On the earnings side, we've grown at greater than 11%. We did benefit significantly from tax reform. Although as we shared with you, we took some of that benefit and we reinvested in the business in some things that are critical to growing our future.
And a lot of the things you're going to be hearing later morning are in fact those things that we've been investing in to position ourselves even stronger going forward. So on the revenue side and earnings, obviously, a part of that is continued underperformance and volume. And some of that certainly was driven by the things we mentioned, acts of nature that beyond our control. These things do happen periodically. We had entered this year thinking we'd have relatively easy comp given the hurricanes last year.
But when you look at the storms in January this year, we're off to a rough start. And then as we got into the Q4, certainly some other events. But there is some volume softness beyond that. It's not all explained by these acts of nature. And then there's the item we referenced, which is around our receivables.
And I want to take a couple of minutes to walk through that. Our revenue accruals is a very complicated process. So as you may or may not be aware, what we do is when we bill the payers, that is the trigger for our revenue. And at that point in time, we have to make assumptions around a number of things. And those assumptions are based on history and obviously some updated information around payer mix and price and so on.
But some of those key assumptions involve things that may change over time. It's around what is the rate of denials. When we do get denied, do we have the right to bill the patients or is that just a free test? And then when a claim is adjudicated and will be paid, will it be paid by the payer? Will it be paid by the patient?
So a lot of complexity. There's also the fact that with some of our payers, they don't always give us up to date membership lists. So there's times when we're billing thinking somebody is in one plan or they're in a fee for service plan, they're in a cap plan or they're in a different plan. So there's a lot of complexity. So how do we manage that?
Well, what we do on a regular basis every month is we do a look back and we say, okay, here's the revenue that we recorded based on expectations. And how is the cash coming in, in support of that? And this is, as I said, a regular process we do every month. And this is a process that has worked for years years and years. But there's always some adjustments.
There's times when you look at that and you say, hey, looks like we need to bring revenue down a little bit based on where cash is flowing. There's times when, hey, looks like we can bring the revenue up a little bit based on what how cash is flowing. So this is a process that we use. So let's go to the Q3. At that point, as you saw and as I acknowledged, our DSOs were up year over year.
I said at that point, I don't think there's any reason to be concerned. There were a number of drivers for that. One was in the month of September, we had fewer bank deposit days than we had the previous year. So we said, okay, that I think explains some of it. The other one was, as I mentioned, we are going through a system conversion in one of our regional labs, tends to delay billing.
Of course, we had confidence that not only those bills are going to get out, but they're going to be paid. We're going to collect on that. And we still have confidence. However, as you go through time and we go through our rigor and we look at this cash collection versus what's been booked, if the cash is not coming in, at some point it's almost a mechanical exercise where you say, hey, even though I may still get some of this cash, the process that we use dictates at this point that we need to increase our reserves. So as we moved into October, we had very strong cash.
And in fact, I can tell you that since the end of Q3, one of the days was the highest cash collection day we've ever had in the history of the company. So there were reasons to be encouraged. However, as we got into late October and we got into November, things leveled off a little bit. And so we went through October close process. We said, okay, looks like we might have a little more risk here than we thought.
And then as we progressed towards this Investor Day, we said, there's enough risk that I feel an obligation and appropriate that I would at this point convey something to the community because we're out here on the Investor Day. If it were not for the Investor Day, we wouldn't be talking about this right now because ideally we would have until the end of the year to look at this and this is part of our normal process. So that's how we ended up with this receivable reserve item. And I can tell you that we've been very thoughtful because this could have a fair amount of variability about it. So when we gave you the earnings guidance, we intentionally gave you a floor and said at least because we want to make sure absolutely there's not a scenario where it's going to be another negative surprise.
Of course, our expectations are that we're going to do better than that. But until we get to the end of the year, we don't know for sure because the process is dependent on what happens with our cash collections going forward. Now I can also tell you that based on what we looked at, we've also reflected that in our forward going revenue accruals. So it's not just, hey, your receivables might have an issue, but also as we're recording revenue going forward, we're also reflecting this what could be a change. So we're going to have an opportunity to take more questions at the end of this time and also at the end of the total session.
So if I haven't answered everything completely, happy to talk more about it. But I did want to spend a couple of minutes on that before I jumped into the forward looking outlook. So the really strong thing about Quest is our ability to generate cash. When you look at since 2012, we've generated more than $8,000,000,000 of cash. And although we made a commitment to return a majority of our free cash flow to our shareholders, as you can see, we're still investing in the business.
So when you look at that $8,000,000,000 a little bit less than half as deployed investing in the company, dollars 2,000,000,000 of that through M and A, a little less than $2,000,000,000 in CapEx. And then despite that, not only we delivered more than half of our free cash flow, we've actually delivered more than the cash more than half the cash we've generated to our shareholders between the dividends and share repurchases. If you look over time, since we first rolled out this capital strategy in 2012 at our Investor Day, here's a bar graph that shows you the free cash flow and what dividends and buybacks have contributed. In terms of returns, there's been a 2,600,000,000 in buybacks over that period of time. We still have an authorization of a little less than 800,000,000 dollars And then importantly, because of our confidence in our cash and where we stand today, we announced last night with our release a 6% increase to $2.12 annually.
With our current share price that's greater than a 2% yield, You know, we consider a dividend to be a much stronger commitment to our shareholders versus other opportunities to give cash back. And quite frankly, another reason for that dividend is showing your confidence in our ability to continue to generate that high level of cash. And this is our 8th increase since 2011. And again, here are the percentages. You can see that every year we've met our commitment and we're projected to meet that this year in terms of the majority, so we need more than 50%.
You can say we had some years like 2013 2016, which benefited from some asset divestitures. And so we were able to deliver even more than the cash that was generated from our ongoing operations. And again, just quickly, here's the dividend growth scenario since 2011. You can see we've delivered about a 27% compound annual growth rate in our dividend increase since 2011. So again, continue to deliver that cash in a very regular basis.
And as our earnings and revenue are growing, directionally we're increasing our dividend. So I'm going to take a couple of minutes to talk about PAMA again, since obviously that's an important driver
in
the next several years for our business and obviously has been this year as well. When you look at the estimated amount that's paid off the clinical lab fee schedule, and again, that's the part of Medicare for labs that's impacted by PAMA. It's around $7,000,000,000 And you look at over the 3 years, there's about $2,000,000,000 in potential cuts if it moves forward as it's currently been implemented. The impact to Quest, as we've shared before, and this is a slide from we've shown previously, is about $200,000,000 over that period of time. Again, this year, we did not take the full 10% cut for the reasons we talked about.
It had to do with a lot of the MAX. We're not already we're not at the NLA rate. They're actually below. So when the NLA came down, there was not a full 10% change. I think the most important piece was that they started paying the chemistry panels appropriately.
So historically, and that's a large part of our billings to Medicare is, as you added analytes, you're almost getting paid nothing for each additional analyte and now they've put in a process that actually pays in LA. So initially in the 1st year, you actually get a lift, but then over time, those chemistry panels will go down with the cuts proportionally in the future. And that's why we're back to the 10% in the next 2 years in terms of our projections. Now, we've also talked about PAMA. Well, obviously, it's a challenge for us at Quest.
It also presents an opportunity in terms of it being a catalyst for consolidation. And in fact, I want to take you through some numbers here that shows that PAMA is disproportionately impacting the smaller labs, including the hospital outreach businesses. So if you look at our best estimate of the discretely reimbursed Laboratory Services segment, Last time we talked to you, we estimated about $50,000,000,000 We think it's probably $52,000,000,000 now. A reasonable estimate for the industry EBITDA is somewhere around 10%. Obviously, there are some players such as Quest and other large labs that do better.
But if you look at, in general, the POLs, you look at hospital outreach, you look at some of the smaller labs, they're single digits. So probably a reasonable estimate 10%, which gives you about $5,000,000,000 of industry EBITDA. And then you look at the cuts. So first off, that EBITDA is split about sixty-forty between the National Labs and everybody else. However, the cuts are going to be eighty-twenty because if you look at the publicly available data on billings to CMS, you see that the National Labs represent less than 20% of that volume.
So therefore, if you take that $2,000,000,000 approximate cut over the next 3 years, about $1,600,000,000 of it's going to go to all the smaller operations. And because of that, for all intents and purposes, it's going to wipe out the profit of the rest of the industry. As people are waking up to this, both they're getting on board more actively with the lobbying effort, but they're also realizing that it may be time to exit. So it's not happening as quickly as many of us would have anticipated. But certainly this is starting to give some traction to consolidation.
And as we get further into PAMA, if we're not able to fix it, it certainly will continue to accelerate the interest in consolidation. And importantly, we're positioned extremely well if that if and when that happens, which we expect. So when you look at our ability to do acquisitions, we in our current level of business, we generate about $300,000,000 more than we need for our internal CapEx, for our dividends and the minimal level of share repurchases we need to do to meet our commitment. You then add on top of that the ability to lever up because we're relatively unlevered right now. And again, this is not precise, but directionally, you go up to maybe a 3.5x leverage level.
We do value our investment grade rating and in conversations with the rating agencies and of course everything comes down to specifics. We feel this is reasonable. We could lever up as much for a short period of time to about 3.5% without putting that investment rating at risk. And then of course, we're buying EBITDA. We're not buying a pipeline.
We're not buying an early stage technology. So if you consider a 10, which is higher than actually we usually pay, but just for illustrative purposes, that says we'd have another $1,600,000,000 So that gives us about $4,000,000,000 of dry powder to do acquisitions. We've been able to do the 1% to 2% that we've talked about as our target historically and what we've executed, obviously, above that 2% more recently with our operating cash flow. So that shows you given the opportunity of value creating M and A, we certainly have the ability to execute quite a bit more. So I wanted to do a quick refresher on a slide that I did in 2016, just to remind everybody and I know some of you are new to the story.
So how does this work with hospital outreach? So here's an illustrative example of a hospital that have a million requisitions of volume a year. As we share, their revenue per acquisition is typically higher than ours, driven by the commercial rates that they enjoy. So I'm using $75 here, dollars 75,000,000 of revenue despite that very rich value per acquisition. As I mentioned, their operating margins typically are single digits if they're making money at all on their outreach business.
So a little less than $3,800,000 in operating income. So in this case, let's say we buy that left hand bars, in this case, I'm building in 10% attrition rate. We certainly don't experience anywhere near that. But in order to ensure we have a path with some wiggle room for value creation, we build in a conservative level of attrition in our pro form a models. You can see I've now reflected a much lower revenue per acquisition of $45 which is typically what we experience on our total portfolio and mix.
So there are significant revenue dis synergies when we do this kind of acquisition. Now despite those revenue dis synergies, we are able to generate a much higher margin than they were because of the economies of scale in this business. So basically, we take that business and we plug it in and pretty much have a similar level of operating margin to what we have our core business. So it's just going into our core laboratory. It's our same logistics drivers.
We're buying all the reagents off the same reagent contracts that we do for our same business. We consolidate the draw centers if they have draw centers. And then importantly, we do a better job of collecting the revenue, have a much lower level of patient concessions than a typical hospital. So all of those are positive synergies that significantly more than offset the revenue dis synergies. So this is a win win because quite frankly, as we talk to hospitals, their outreach business is not a competitive differentiator for them.
This is ability for them to monetize that, invest in something that may differentiate them in the marketplace. And patients are better, payers are better, employers who are paying the bills better and obviously for Quest, it's a good deal. So a couple other aspects of outreach that are important to note. This is a partnership. This is not an arm's length transaction where they optimize whatever the price is.
And of course, they want to try to do that. But they understand that when they sell to a 3rd party, they have to live with that lab. So if they're owned and affiliated physicians perhaps or other people who are within their geographical area that they're serving are now getting their labs done by somebody to whom they've sold their business. They have to be confident that that work is done well, that it's done in a quality fashion. So therefore, this is not an arm's length transaction where there's a bidding war.
And I think some people have asked in the past, so how do these work and are there people always at the table competing with each other? I can tell you that we don't do these transactions as the highest bidder in less. There are situations where it's absolutely worth a lot more to us. And so that gets to my second bullet here, which is the cost synergies are the driver of the value creation here. And so therefore, depending on where that business is, different potential buyers are going to have different cost synergies.
So typically, when there is a process where something is being sold, very quickly it emerges which potential buyer can create a lot more value through those cost synergies than somebody else. So in those cases, we might offer a higher price because we can still meet our economic requirements, create a lot of value because there's a lot of value creation in those cost synergies. We do include a non compete. Obviously, we comply with the state laws in which we're doing the purchase. It's an opportunity to do more.
So as you saw with PeaceHealth, involved more than buying their outreach. It also involved a PLS deal. And then also in PeaceHealth's case, we're also doing the reference work for them. So really as part of our strategy, which you'll hear more about this morning, really building these strong partnerships, these transactions are a lot more strategic than just buying their outreach business. And then the last bullet, maybe the most important one now, which is that can reduce costs for health plans and expand access.
So in our conversations, and I'll touch more on this in just a minute with health plans, the fact that when we buy an outreach, right away it saves them a ton of money is a basis for talking about how do we then accelerate that and how do we share in some of that and how do we maybe make it easier for us to do some of these transactions because it's good for you, health payer, employer in the area, etcetera, not just good for Quest. So there is some economic value in working together on some of these things because there's a ton of savings to the system when we buy this from a high priced hospital. So obviously, reimbursement pressure is an important topic right now. I just want to touch on kind of to paint expectations going forward for the next couple of years. Obviously, this year we've got the 1st year of PAMA.
We've got kind of this core level of price that we've had for a number of years pre PAMA. And importantly, it's not all from 3rd party health plans. In fact, as we've been talking about more lately, a portion of this comes from what we call client bill. It's where we're doing business directly to hospitals for their reference business. It's where in the states that it's permitted, where a physician sets themselves up and for the markup situation where they're billing the 3rd party, we're doing the work for them and we're actually billing the physician directly.
And so there is a fair amount of price competition in those client bill areas and actually in the hospital space, as you're going to hear later, that's probably accelerating. But going forward, obviously, this year is the peak. So we've got high level of PAMA both in terms of a percentage and in absolute dollars because as you saw reimbursement we get clinical lab fee schedule starts here, you cut it by 10% and then you're cutting 10% off 90% and you're 10% off 82%, etcetera. So the dollar change year over year, even though the percentage change is consistent the next couple of years is actually less. And then this is a year where which is absolutely a good thing, a great thing for the company and you're going to hear a lot about health plan access in the 1st year because we're going from out of network higher rates to in network.
There is a significant price cut, but obviously we are fully committed and confident we're going to deliver significant volume to offset that price, but it is a price in the current year. When you go forward to 2020, PAMA will be slightly lower because of the math that I just walked through. The health plan access for all intents and purposes goes away. That's mostly a 1 year phenomenon. And then that core level may or may not we've seen you've seen it bounce around somewhere between 50 basis points and 100 basis points.
So depending on the circumstances and situation in the competitive environment, we're confident it's not going to be over that 100 basis points. But there's certainly some opportunity and expectation and desire to make it even lower. And then when you go through to 2021, again, we don't know because there's another collection period on PAMA. But if you look at the data where it stands today, if there's not significant different prices in the next collection period, which one would not expect if they use the same process that there should be, because you're talking about millions of data points and a weighted volume median. It's hard to move that a lot.
There's a little bit of a tail in PAMA in 2021, but nowhere near as large as what we're incurring in 2019 2020. So PAMA should be less. Obviously, the health plan access piece is gone. And then as we continue to strengthen our value proposition way beyond price, our expectation is that we're going to do better and better on the pricing end across all of our business. So like all businesses, we've got a handful of tailwinds and headwinds.
I want to spend talked about the major tailwinds being reimbursement pressure. Certainly, every year, we have some level of SWB inflation. I mean, to answer the question, I'm sure people mind. At this point, we're not experiencing anything extraordinary there, But you have your typical type of inflation year over year. So on the tailwinds, you're going to hear a lot about the opportunity with Health Plan Access.
So I'm not going to spend time on it other than to say this, as I've said before, is not just a hunting license. This is truly moving to a partnership. And we get asked all the time and I asked myself when I started in this business, why is this market not more rational? Why is there not more volume in the better value areas, in that case, the National Labs? And so when you look across the stakeholders between the patient, the physician, the payer and ultimately in most cases the employer is paying the bill, there's not been everything necessary to drive that.
So you're going to hear the fact that for each of those stakeholders, transparency is improving, it's going to continue to improve. So there's a lot of things we're doing and we're working with the payers. You can hear about tools. They're important so that you can execute against the decision you want to make and feel confident with it. And then finally, economics.
So to make the economics clear and even more compelling. So when you have that transparency of the tools and the economics across all those stakeholders, that's what is really going to make the difference. M and A, you notice we move that up from 1% to 2% to 2% and that's based on our recent history and looking at our pipeline and our confidence that we should be able to do at least 200 basis points on a CAGR over the next several years. That is without any assumption about a major move driven by PAM in terms of consolidation. So we've been able to do that plus 2% recently without getting much traction yet from PAMA.
And then of course Invigorate. So Jim is going to spend a fair amount of time to share a lot of really good detail on work that we're doing. We have a track record of 6 years of driving tremendous productivity. And again, this is cost and quality going hand in hand, not just cutting cost. And we have voiced recently a high level of confidence that we can drive kind of best in class 3% or so productivity every year.
And Jim will share you some detail to also help you understand where those opportunities still are and give you the confidence that that will continue to be a critical lever in our ability to offset some of the pricing headwinds and obviously the annual inflation we have in our wage bill. So as we put on our press release, if you're looking forward, we still feel that a 3% to 5% CAGR over the next 4 years is something that's achievable. The important thing for me to share is that not all this is coming from our core laboratory testing. So as you look forward and you're going to hear a fair amount of detail later about some of these growth opportunities, some of these adjacencies are going to contribute more to our growth. So this is not just taking a business that's been growing in an industry that's been growing in low single digits and gaining a ton of share or even through consolidation through M and A.
This is actually growing businesses around our consumer opportunity to share our data. It will be a big driver. You're going to hear about our clinical trials offering and you may have seen the demo out there. So there's opportunity for some of our smaller businesses that are in their infancy to have very high growth rates over the next couple of years, which are going to supplement the core business that obviously as we've gotten new access, we also expect to do better. So I just wanted to make sure you understand, this is not just taking our core laboratory testing business growing to 3% to 5%.
We also have these other growth opportunities that are going to contribute as well. I already mentioned the acquisition of at least 200 basis points on a CAGR basis that would put your organic 1% to 3%. We are committed to growing earnings, not earnings per share. So I don't have any assumption about a high level of share buybacks to supplement our EPS. That decision will be made as it always has been, which is situational, what's the best way of deploying the cash that we're generating.
But we believe in the 4% to 6% range, what would be faster than our top line growth. And then very importantly, we would expect our free cash flow to grow commensurate with our earnings growth. So in closing, I'd ask your key takeaways to be, we will grow our earnings and revenue in 2019. I am not giving guidance today. What I will address is the question, okay, so this change you're making in 'eighteen, what does that mean for 'nineteen?
Other than we're jumping off a lower point, nothing this is within period adjustment that we're estimating at this point in time. It's nothing that's going to be a carryover, but we will be entering 2019 at a lower point than maybe we expected previously. There are certainly structural changes coming to this industry that are great opportunity to accelerate consolidation and for us to gain share. Our really strong cash flow and flexible balance sheet give us the opportunity to take advantage of that. And then we will continue with our same capital allocation strategy that Steve rolled out back in 2012 to return a majority of our free cash flow to our shareholders.
So with that said, I'd like to bring Steve back on the stage. Steve?
Thank you, Mark. With that as the backdrop, I'd like to take you through what we've been working on, as I said, and give you some of the outline of our strategy that we believe supports why we believe we can grow the top line and bottom line of our business. Yes, we are the world's largest laboratory, but what we have talked about for many years is that we're actually in the business of diagnostic information services. And that is our focus. Back 6 years ago, we focused the business around that.
We actually divested from some businesses that were not related to that scope. And we believe that puts us in a leadership position that's very focused. It gives us the scale to be able to take advantage of the opportunities in the marketplace that I will speak to and also leverages broadly defined the innovation we have as a company. If you look at our presence in health care, it is remarkably impressive. We serve roughly 50% of providers in this country.
That's both physicians as well as hospital systems. 2nd is we interface with every EMRs on the planet, the big ones like Epic or Cerner, but all the small home growns as well. We have a growing presence with retailers and we'll talk about this. We think the physical presence that we have is an important attribute that we bring forward. We serve 1 third of adult Americans each year.
And over the course of 3 years, it's about 50% of adult Americans. It's an impressive number. So the depth and reach of what we have in the delivery system in the U. S. Is quite strong.
And then we keep that data for over a decade. So over 40,000,000,000 data points that we use and we'll be talking later on today of how we use that data to help the challenges in health care. We do that with a system of over 6,000 patient access points, many of which are our patient service centers. And then finally, we have over 20,000 healthcare workers, 12,000 phlebotomists and 8,000 other healthcare workers. So you think about that presence that allows us to generate the $7,600,000,000 and continues to have us be a deep and rich player in healthcare.
So in 2012, what we talked about given that backdrop, yes, we're the world's largest lab, but we're in the business of diagnostic information services. What we need to do is make sure we apply all that content to the problems in health care. And so what it's all about is really empowering better health with diagnostic insight. It's not just about the data, it's doing something with it. And when we do that, we believe that there's 3 things we can achieve.
We can make a contribution by making a difference in health care. 2nd is we will build value for our shareholders, which we have done. And third is we have 45,000 people that work with us on this and they're going to be more inspired. Now 2 years ago in 2016, we updated our strategy. We said there's only 2 areas we want to be focused on.
1st is the continuation of our growth track. And then second is we're going to continue our work to make sure we operate a better quality business, quality in terms of medical quality, service and efficiency. Now with that as the backdrop, we also guided our thoughts around 3 areas of our business: to think about the portfolio we're managing and how that would help accelerate growth. So if you see the Venn diagram, you see 3 categories of our business, the first being the largest. It's our general diagnostics business.
This is the core of the business. And if you think about an $8,000,000,000 business, it's a business that's about $6,000,000,000 in size that we believe will continue to grow and is very profitable. Now that affords us an opportunity to invest in 2 other faster growing portions of our portfolio. First, what we described 2 years ago, advanced diagnostics, we define the term advanced diagnostics. It's really our genetics and molecular business.
And then second is invest in using that data with related services. We describe it as diagnostic services to deal with and help the challenges in healthcare. So that portfolio change you'll hear described in more detail as we talk through the course of today. Now how are we done? Past 3 years, you see our stack performance here versus various indices.
You see our dearest competitor. And actually, if you look at the bar to the right, that includes health care insurance companies, in aggregate was 59%. If you take out the Healthcare Insurance industry, interestingly enough, that number is 23%. If you look at 5 years, total TSR, you see our performance here. It looks to all the different indices.
And again, on the right, if you take out the health care insurance industry, our performance in that industry is about 67%. So, interesting comparisons. We have delivered value through what we've delivered so far, but we're talking about the future today. We are a significant player as I described earlier. It's an impressive leverage story.
It's about 2% of health care cost is spent in our industry, but it represents the majority of the information that's used for health care decision making is made with the diagnostic information services. We can use that data for population health, which we'll talk about today. We'll use that data to help employers manage the health and wellness of their employees. More and more health care is going into the home. And then finally, we'll work with pharma on recruiting patients for their trials.
As I said in my introduction comments, we're a very unique place of this industry. And I would argue there's catalysts now as we sit here today, as we enter 2019 that we have never seen before. Mark brought you through the impact of PAMA and there's 2 sides of PAMA. On one side, it's a price cut. We described the impact on our business because of it.
But he also, Mark, just described is the impact on the profitability of the industry. If you think about the industry, if you take out half the profit of any industry, you know there's got to be structural change and that has to benefit the leader and Quest Diagnostic is the leader in this industry. 2nd is we're going to spend a lot of time talking about the increased access. So yes, we'll have more and more lives that we can help get access to and allow us to grow and gain share. But more importantly, the working relationships with healthcare insurance companies are changing.
Matter of fact, UnitedHealthcare Group at their Analyst Day or their Investor Day here this week, now a very active partner of ours of moving the change. And then finally, as all of us employers, self insured employers are passing more of the cost of health care to our employees, those employers are becoming smarter and wiser consumers. And so we are offering up what we believe is the best value proposition in our industry and that will benefit us going forward. So you think about the market, we update this every 2 years, it's about $82,000,000,000 market. The majority is serving physicians, but with a large portion of this market in the hospital marketplace, about 36% of the total marketplace.
Strikingly, despite what everyone thinks, we only have 9% in the market. So the opportunity is clearly to gain share. You peel back the onion, you look at just the physician portion of this marketplace, it's about 52%. We believe with PEBA, it's growing slower than we talked about 2 years ago, around 1% to 2%. And you see the physician office labs represents around 46% of the and physician office labs represents around 46% of the market.
And then Quest has only 13%, despite being the leader. And the most nearly defined portion of this market, independent laboratories, despite what everyone thinks that this is a duopoly, This is not a duopoly. This is a fragmented marketplace. Our sales are the nearest competitor have about 46% in the marketplace. This portion of the marketplace is growing slower because of more price pressure versus the pricing power that some of the hospital systems have with the payers, but it is growing at low single digit rate, primarily from 2 years ago with the changes of PAMA.
So again, big opportunity for us to gain share. So you put it together, what you have and the primary portion of our conversation today will be centered on that physician portion of the marketplace. And we do believe it's growing to low single digit growth and the opportunity is for us to gain share. So Mark brought you through the numbers on PAMA. What I'll share with you is a few things.
One is we're planning for the worst. So what you see in our outlook assumes the worst case for PAMA and Mark brought you through those numbers. 2nd is we strongly believe that CMS did not implement it correctly. So they came to the wrong conclusions by not looking at all the data. And third is we're continuing to work with Congress and work on fighting this to make sure we get a better approach that represents the marketplace.
But we continue to plan for the worst and obviously hope for the best. Payers are all over trying to understand what they could do to manage the growing health care dollar. And this is a slide that shows you one of the biggest opportunities that we all have, which is to take out the variation in health care spending throughout the United States. If you look at the $3,500,000,000,000 we spent in health care, roughly $500,000,000,000 is representing the variation either by provider type or by geography. And this data is coming from 1 of the largest healthcare insurance companies, laboratories represent one of the biggest opportunities to drive out some of that variation and therefore it presents us with a big opportunity.
Now to show you an example of that, and this is actually data, not our data, it's data from Massachusetts. It's in a website that Massachusetts provides to their citizens. And the reason why Massachusetts is doing this is to inform their citizens to be smarter shoppers. And what you see here, and this is the data actually from the web site is you see Quest Diagnostics and let's take CLIP its cholesterol testing. Our average commercial price is around $19 and the hospital systems mentioned here about 2.5 times that number.
Consumers are seeing this, employers are seeing this and health plans are seeing this, particularly for their fully insured book. So there's an opportunity as all of us become smarter shoppers in health care. And being the best value in our industry, we believe this is an opportunity for us to gain share and grow. So you put it together, we have these 3 fundamental drivers, which we believe are catalysts for change. Again, that PAMA effect will help us accelerate, we believe, the consolidation that we see in the marketplace.
2nd is the health plans. Now I've realized after a decade of working on a different plan that it is best to have a couple of nationals in contract and to work more closely in a variety of ways, and we'll talk through the course of the day, to be able to drive more of the laboratory purchases to those larger providers. And then finally, the smart shopper and the consumer will affect our business and will benefit Quest as one of the strongest value propositions in our market. Now with that portfolio overlay I talked about, there's 5 strategies we've been working on, and we're going to be taking you through each of the 5. First is to continue to accelerate consolidating the marketplace.
So 1 percent to 2% growth from acquisitions, we've delivered on that. And what we shared last night and we'll talk about today is we actually believe there's an opportunity for us to get north of 2% going forward. Big opportunities for it to continue to consolidate. 2nd is the relationships with health plans, we'll speak to, it's very important. But equally, the relationship with hospital systems, integrated delivery systems is important, an important growth driver for us.
We're taking dollars and investment dollars and moving it to a faster growing portion of our portfolio, advanced diagnostics. 2 years ago, we put in place a new leader for that, Carrie Eagleton Manor. She'll be presenting the progress we've made and the belief that there's a big opportunity for us to accelerate growth with being more successful in that business. You'll see outside, if you have an opportunity to see the demos, please do, that we have moved to become a much more consumer oriented company. Our vision is to be the most consumer oriented laboratory on the planet that has multiple aspects, we've made a lot of progress.
And then finally, as we have a tremendous amount of data, we're wrapping that around with services either that we create ourselves or we can acquire and that affords us another nice growth opportunity outside of the core. So you think about this together, the portfolio I described in those strategies, they all support each other. So in our description this morning of what we're working on in our strategies, you'll hear about acquisitions, not just with hospital outreach with hospitals, but in advanced diagnostics. You'll hear about our consumer strategy, which benefits working with health plans, but also benefits our advanced diagnostics business. You'll hear about opportunities in data and services that benefits the hospital systems as well.
So all of these are focused on that portfolio redirection that we're working in the company. So let's quickly go through each of the 5. What have we bought over the last 2 years? We've laid out here on the graph. Yes, we've done a number of outreach businesses.
As Mark has said, we believe there's a lot more opportunity in front of us. But we have done, as you see here, about 8 outreach businesses, actually 1 this week and we're in California. 2nd is there's been a few regional acquisitions that we have done, basically 1 a year on that path. We actually announced another one in Missouri this week, Boyce and Bynum. And then finally, we're acquiring a number of capabilities, and those capabilities are primarily those of faster growing areas of our business, and we'll speak to that today.
So if you look at the last two years, we've invested about $1,000,000,000 in acquisitions. About 60% of is actually on the right and building capabilities to accelerate growth. So balanced approach to what we acquire. And as Mark said, we believe there's going to be more and more opportunities around consolidating this market, particularly as hospitals consider the changes that they see happening in the health care landscape. Access, I mentioned in my introductory notes, we've never had better access.
We estimate 43,000,000 lives. And we've talked a lot about UnitedHealthcare, but you might have read that we're also back in network after a decade in New Jersey and Horizon. Big change. It's our home state. So you take UnitedHealthcare, you take Horizon, we've got a great growth opportunity in the state of New Jersey.
And also this week, we announced we're back in network at Anthem, Georgia. So big change in access. That change in access provides us about a $4,000,000,000 opportunity, a $4,000,000,000 market opportunity for which we'll speak to today to accelerate growth and to grow. Hospitals. We all know hospital costs continue to go up, the reimbursement is going down.
I spent a lot of my time talking to hospital CEOs and CFOs. And interestingly enough, we do believe there's an opportunity as they understand really what's happening with PAMA because despite what one would think, they're starting to learn about PAMA as we speak and that will provide us an opportunity for growth going forward as well as it has in the last year or 2. And as we get into the discussions around integrated delivery systems, it's really talking about 3 areas. 1 is how we can help them with their inpatient cost, how they become more efficient. 2nd is how we could help them with their more sophisticated work, much of which is advanced diagnostics.
And then finally is do you really want to stay in this asset? Advanced Diagnostics, again, 2 years ago, we described it in a different way in the marketplace. We think this is a great way of describing because that's where the growth is. We are large. We're the largest in the industry, about $1,000,000,000 of our business.
We believe there's an opportunity to accelerate our growth and this is the future of health care. And like most of health care, it does take some time as an industry to develop, but we're very well positioned, making investments, and we will accelerate growth. Our consumer strategy, tremendous progress. If you haven't had an opportunity to see the kiosk work and the ads we're bringing out periodically with our software. Gone are the days of the clipboards and the whiteboards and paper and we're bringing healthcare and we're bringing healthcare in this industry and specifically Quest Diagnostics into the digital age.
That digital experience will be a differentiator for us. It is today and increasingly be more going forward. And as you think about and you see the investments it takes to do what we do, smaller operators in this space could not possibly do that. Physical access, our presence with Safeway Stores is doing quite well. Our joint venture with Walmart continues to build and we're optimistic and there's more opportunities as well in front of us with other physical partners that could help us with the health care challenge.
We introduced new products. We are a partner with Ancestry. Can again see outside our new direct to consumer product we just introduced in the past week. And then finally, it's not just about products, it's not just about systems, it's not just about process, it's about people. And so we spent a lot of time as a company making sure the 45,000 people that work for us and those touch points they have with our patients every day are on top of that relationship.
The data and services opportunity, again, remember, taking from the core, investigate advanced diagnostics, supporting data and services provides us an opportunity to monetize that data, use it for population health, use it to help payers, healthcare insurance companies manage their quality scores, manage their payment mechanisms that will take us outside of traditional care settings, It will take us to the home and allows us to work with pharma in a way that we've never worked before. So the clinical trial product that we just introduced this fall, and again there's a demo outside, is a great example where we're using our data. But also another great example to Mark's point, there's a lot of opportunities for growth for us outside of the traditional laboratory marketplace that you always think about with Quest Diagnostics. So you put it all together with that portfolio redirection with the 5 strategies, that's why we're confident we can continue to grow the top line and continue to grow the bottom line. Now the second part of our strategy is equally important.
We believe that accelerating growth and driving operational excellence comes hand in hand, And this has served us very well over the last 6 years. It's not just about cost. I'm often asked a question, have you taken all the cost out? It's not just about taking cost out, it's about we're getting better. It's about getting better quality, it's getting better service levels and it's becoming more productive.
And when Jim Davis gets up and brings you through the examples of what we have done already and what we can do going forward, you will get it while we have more opportunity in the future. And we believe we need that opportunity to offset some of those headwinds we have going forward. So the 4 categories that we'll bring you through is payment, how we get paid from patients and also equally how we get paid for healthcare insurance companies. And we believe there's an opportunity to get better there. 2nd is the whole digital opportunity broadly defined.
We have made a lot of progress, but we have more opportunities in front of us. We still have an opportunity to drive consistency. By driving consistency, it gets rid of waste, allows us to shut down systems, streamline processes and become more efficient. And we'll take you through some examples where the opportunity still exists for us to automate a lot of opportunities across our business to do that. And then when we do that, we will continue to optimize this enterprise.
And with that, as you realize, we've been on this journey of becoming more and more productive. And the specific program we've talked about in the past is EVIGORATE. As you recall, we had a $1,300,000,000 goal last year. We exceeded that goal. We're happy about that.
But more importantly, we believe there's opportunity for us to continue to become more productive. And what we describe our goal now to be is 3% productivity on our cost basis for the future. And for those that are running the numbers, our cost base is about $6,000,000,000 3 percent is roughly $200,000,000 a year. And what we'll do today is to bring you through concrete examples to give you reasons to believe that there's still opportunities in front of us. There's tremendous opportunities for us to get better.
And that $200,000,000 a year will help us reduce the reimbursement pressures, helps us reduce the wage bill pressure we see in our labor based industry and allows us to achieve what we're talking about with growth and growth in earnings. So in summary, I'd like to leave you with 6 things 5 things to think about, and we'll be talking about this more today. Number 1, the catalyst I described is affording us change because there's structural change going on in this industry that we've never seen before and it's an opportunity for us to consolidate. We are the market leader and we will be consolidating. We're so confident about that and our pipeline is so robust that we've increased our goal around acquisitions from 1% to 2% to north of 2%.
That's number 1. 2nd is our access with healthcare insurance has never been better. 43,000,000 lives, dollars 4,000,000,000 worth of opportunity. We have access now with UnitedHealthcare, access now with Horizon, new access with Anthem Georgia. That's the best we've seen in over a decade.
It starts in 2019. But what you'll hear from Everett Cunningham is we're not waiting for 2019, we've got a good head start. 3rd is hospitals need our help. You work with hospital executives, they're all struggling. Costs are going up, payments going down.
We have an opportunity for them to have Quest Diagnostics be your lab partner. We can help you with your costs. We can get you more effective with your sophisticated testing. And by the way, do you really want to be in this outreach business, given what's happening with the industry consolidation? The brand is the strongest brand in our category and is getting stronger every day.
Consumers will demand from their physicians going forward, they want to work with Quest Diagnostics. One strong reason is we have increasingly the strongest value proposition on the planet and it's getting stronger. And then finally, is we will take that core business, which is so strong and will continue to generate cash and we're going to invest in 2 platforms of growth, advanced diagnostics and diagnostics services that will help us accelerate growth. So with that as a backdrop, I'd like to have Mark come back up and we'll take all your questions. Mark?
Thank you. First question on the guidance update. Mark, can you bridge for us how much of the update on the revenue side is due to underlying volume weakness versus mother nature versus a change in assumptions around revenue
accruals? Yes. So again, I can't give you precision because we're forecasting forward to the end of the year. So with that caveat, a large portion of the revenue change and really the large driver between the earnings change is this receivable adjustment that I am anticipating. But at this point, as I said, we don't know for sure.
We don't know how large it is. We don't know if it's certain. So a smaller piece is the volume. And then within that volume, I'd say a meaningful portion of the volume is from the things that we mentioned, but certainly not all of it. So because, Dan, I'm projecting, even if I was wanted to share with Precision, I'm guessing on some of those things are all going to move a little bit.
Certainly, we have estimates on what the acts of nature impact is, but we still track some of those in those regions and see did some of that recover and seem to come back. So that's still work in progress, especially the snowstorm we had in the East.
Over here to Anne.
Thanks. In your long term guidance, could you especially for 2019, can you tell us what you assume for all this increased access with UNH and the New Jersey and Georgia plans?
Just start.
Yes. So, we're not going to size it precisely through all the math. Obviously, we haven't given guidance on 2019. I think when we come out with our 2019 guidance, you'll be able to build the pieces because you certainly have some view towards the PAMA impact. We'll talk a little bit about kind of general market growth and then how we're going to accelerate our share through the access.
So we'll shed a lot more light on that when we give the guidance. But as I'm sure you can imagine, the 3% to 5% is really enabled by significant opportunity. And Jim will size that opportunity, Jim and Everett in a minute. And it's not just 2019. So this is something that will give us a tailwind for multiple years.
Obviously, there's some things that we anticipate will move quickly, but there's some other opportunities to gain share that will take a little bit longer. So the good news is this is a multiyear opportunity on access and that is what's going to able us get through some of the headwinds of PAMA.
So, again, as Mark said, we'll be going through a presentation here that will take you through kind of the detailed build up of the opportunity, taking that And there's a big difference between those physicians that are already strong accounts and how quickly it will come on board. But as Mark said, this is an opportunity for growth not just for 2019, but for 2020 and beyond, okay? So we'll kind of go through that. We'll have another panel at the end. So if there's any other questions about that, please come back to it.
We think we gave you a little more visibility to the opportunity in front of us and when.
Can I ask one more question on the long term guidance? Obviously, the 4% to 6% is an earnings guidance and doesn't include share repurchase. I guess, what would get it over the 4% to 6%? What's your outlook
Yes. As what we have shared in the past, if you look at our historical track record is in any given period of time, we don't sit on the cash. So we would prefer to deploy it to M and A, but the M and A has to meet our financial criteria, which includes a metric around return on invested capital or includes a metric around NPV, typical things that you would look for. And our return on invested capital is significantly above our cost of capital. And so therefore, as we look at those hurdle rates, we're very comfortable that we have enough cushion for executional risk.
And we feel very confident before we move forward on a transaction that we have a path to value creation. If we don't we're not going to do deals for deal sake. So there are certainly some historical periods of time where you looked and we gave back most of the cash to our shareholders because we didn't have a deal that was a better way to deploy that cash. So and the question is, it's going to be situational. At this point, without knowing that and not being able to project that, our assumption is that our share count is flat through the next 4
years. We'll move up front here to Jack.
Sure. Thank you. So just wanted to focus a little bit more on the reserve adjustment again. What was different about the look back this year versus prior years? I appreciate all the commentary around some of the considerations that went into it.
But I guess just given the magnitude of the change, the $50,000,000 it seems significant when, I guess, you look across the broader landscape, we're not seeing these significant shifts. So what's different about this year than prior
years? Right. So first off, at this point, the reserve adjustment that I am projecting in the updated guidance, which is not final, is not anywhere near $50,000,000 Okay. So some of that is revenue adjustment is driven by the volume softness that we referenced. And what's different?
More it's the timing. So as I said, we do this look back regularly. What we also do in partnership with our audit partners is we do a annual look back. So what we have done over the last couple of months is looked at 2017. We looked at the receivable balances at the end of 2017.
We looked at the cash collections over the 1st several months of 2018 to justify that 2017 revenue was correct, the receivable balance was defensible and it looks spot on. And that's what we always do. So as we progress through this year, obviously, we continue to do that analysis. How is cash coming in? Is it supporting the receivables that we're establishing this year.
The reality is that for 2018 revenue, you're not really going to have a good idea of any note until the Q2 because of the lagging collection timing. So at the end of the Q1, the receivables you have at that point, you're depending on whether it's coming to patients, whether it's coming to the payer, you're talking, yes, from the payer in the next 30 days, but a lot of it's not going to be there, maybe 90 days. And even within the payers, you're going to see Jim is going to walk you through some statistics. So our initial rate of denials is significantly higher than where we end up. So we're always appealing, challenging.
There's administrative reasons for denials that we fix and all this kind of stuff. So even with the payers, it's not as if when you get paid that you're going to get paid in those 1st 30 days. They can take some time through the appeals process. So it's a long winded way of saying, as you look at 2017, everything we've looked at absolutely clean. As you look at 2018, you're really not going to see any sort of an issue emerging for quite a while.
Now we got to the end of the Q3, we looked at the DSOs and we said, we went through our regular process. We did it in partnership with our external partners. We use the same methodology and we said, yes, we're not going to overreact because we had fewer banking days. We have some things I shared. We, for instance, are going through a lab standardization transition in one of our larger labs.
We also have a number and this happens periodically, a handful of payers who are recouping money, just deducting it out of the payments for things that they claim were overpayments in the past. And a lot of times in this case, we looked at them and said they're wrong and we're going to prevail and we're going to challenge us. Okay, there's a couple of $1,000,000 that we haven't gotten, but we're going to get that because they're wrong. So we go through there's obviously some thinking and judgment in this as well, but we approach it in the same way. So to answer your question, Jack, is why we didn't do anything sooner because the methodology we use didn't dictate anything sooner.
As I shared in October, we were really encouraged because we're never quite sure because I don't have an AR system where here's a particular requisition claim. Okay. I do I've got an invoice. I get a receipt. I match those and I see how I get paid.
We don't have that system. Never have, okay, so it's more of a high level macro. We assume that we sent $100 worth of bills to Aetna. We're going to get paid $80 Did we get $80 versus the individual claims stuff? So that's why it is a little bit of art.
But again, it's tried and true. It's been years years. We just did a look back at 2017. I don't think there's a major issue with the process. With that said, because of this, trust me, we're going to look at it real hard and we're going to make sure that if there are ways to improve it, we're going to find ways to make sure this doesn't happen.
But as I said, this is generally under the radar. Every month and certainly every quarter, things are moving up and down slightly based on this methodology. It's just that given the timing, the fact that we have this Investor Day, felt they had to come out and mention something without all the complete information. And obviously, given the potential magnitude, I'm saying potential because we don't know and we wanted to protect ourselves against any more bad surprises that we need to look at this hard and make sure that certainly something like this doesn't happen again.
Yes. And on that, given my earlier comments around operational excellence, we're using this as an opportunity to look at that historic way that we've done it and we're getting to the root cause of all the different ways that we collapse, if you will, and thinking about, okay, how we take it to the next step, because the last thing we need to do and the last thing we want to do is what we just did. So we're thinking about how we can get it even a step through improvement beyond what we've done so far historically.
Great. And just have one clarification. So this is part of the baseline, correct? So as we think about the jumping off point from a long term forecast, we should assume the greater than $6.30 for EPS is the new level, not this wasn't one time, right?
Right. Now with that said, if we had had visibility to this, which we didn't for obvious reasons, then we certainly would have had an opportunity to adjust our cost structure. And so as we plan for 2019 and obviously we're well down that process, but we're not final and especially given where we're going to end the year, we're going to look at it. So I don't want you to think that somehow this is like a permanent level of profitability and so on. So yes, we're going to do what we need to do to have a plan that is acceptable to our stakeholders, that's deliverable and so on.
So yes, we're going to be jumping off a lower point, but it doesn't mean that there aren't levers we can pull to make sure that what we put forward in 2019 and beyond is not something that's exciting.
So we'll be evaluating the resources to deliver on our commitments.
Go next to Kevin.
Thank you. So could you guys give a little bit more color on the organic growth? Think you're calling for 1% to 3% for 2019, a little bit more detail as to is that coming from price or volume, especially given the headwinds next year? Then on top of that, with the M and A accelerating to 2%, what are you guys really focused on, especially with the hospital outreach opportunities? Yes.
Just real quick, first off, so the 1% to 3% is not 2019%, Kevin. So to be clear, it's a CAGR for the next 4 years on the organic.
Yes. So let's talk about organic growth. First of all, we have headwinds and there's no question we have more headwinds in '18 than we had in the prior years because of the start of PAMA. And you saw the numbers from Mark. We have headwinds in 2019.
Remember, PAMA, if this is done correctly, will tail off. It's all market based. And once we actually believe they've overcorrected. And what we've shared this as an industry, we believe that the essentially 30% cut is more than they should have done. Now we need to have the facts that they collect to support that.
But we're hopeful as they go through the process with us that, that will be saying that after we get through 2020, PAMA is in back of us as a substantial change in the headwinds. So that's headwinds for organic growth. 2nd is, when we talked about 2018, we did have 3 test categories that we saw a change in the market. You remember, we've talked about this in earnings call, it remains the chain, the same prescription drug monitoring around vitamin D and hepatitis C. That causes about 100 basis points of headwind this year.
It's not insignificant. We were hopeful that we'd be able to deal with some of these issues with payment, with the health insurance partners we have. We've made some progress, but not nearly enough. So that was about 100 basis points. 2nd is, if you look at some of the other opportunities that we saw in our plan and while we thought we would continue to stay in that march of improving organic growth, I'll tell you the hospital market for us is a good market.
We're the market leader. We've got about $1,000,000,000 You'll hear it later on what we're doing in the hospital market. And we were growing. We were growing for 2 or 3 years. And I could tell you in that marketplace in 2018, there's been a lot more competition.
So Mark referred to it, and if you noticed in the price category, there's client bill. So there's been it's not just all health care insurance companies. There's actually price competition with hospital clients as well. And so frankly, we lost some business, okay? We didn't expect to lose.
And second is part of losing that business was not all on price because there's some portions of our value proposition that we need to strengthen. So we're actually building on that, okay, to go forward. And then if you look at that hospital play, we actually saw some in sourcing of business that we didn't expect. One big chunk was in our anatomic pathology business or surprisingly, our hospital system took in some of the business. And then also part of the growth we see, and we are growing in this category, professional lab services is where we help hospitals become more efficient with the laboratory.
We have a lot of deals, but it's been hard for us to get it over the goal line, okay? And so we expected more of those in 2018. They're still with us. They haven't gone away, but they're taking longer to close. And it's kind of a it's a story that we've shared before.
So what we're doing is getting more and more deals, okay? And we'll hear later on say what our ambition is for growth. So you wind the clock forward because that gives you a little bit of a backdrop of 2018 because to be credible, we have to describe why didn't we grow organically in 2018. In 2019, access is the biggest opportunity we have, and we'll be talking to that. Clearly, it's a big opportunity.
2nd is our product or our testing categories is getting stronger every day. Advanced Diagnostics, Carrie will get up and speak about that. What we're doing with the consumer is an incredible growth opportunity for us. What we're doing outside in traditional areas because we always think about the basic laboratory testing and not necessarily advanced diagnostics, but equally what we're doing around data in services. And we do continue to see in my takeaway slide the opportunity for us to consolidate, for us to gain access and therefore gain share and for us to continue to build growth for a variety of product lines that fit into those strategies that we're working.
So in aggregate, that's why we feel that we can continue to grow organically going forward.
Yes. And if
I could just add a sorry, real quick, if I could add a couple of things to Steve's comment on PLS. So we didn't announce it. We just signed a PLS deal in the last week. This deal, we were firmly convinced was going to be done in the Q2, okay? Then we got into the Q3 and literally we thought we were within days of signing.
And for all sorts of reasons that we struggle to understand these things just slide and slide and slide and I can assure you it's not on our end, okay? So yes, we're learning from this in terms of what we can count on and build. But in the PLS example, it's growth that will come. We're going to get these deals signed. It's not things we've lost or something that's a lost opportunity.
It's just that they're taking incredibly long and in ways that are not fully explainable. So we're just going to have to take that and be more conservative on what we're betting on these. The other one Steve mentioned, PAMA, it's not I'll make a little stronger statement. It's not that we think they got it wrong. We know they got it wrong.
Okay. We've got data that shows they got it wrong. And it was the way that they approached it. But if you really look at the commercial rates across the full market, it should be substantially higher than the rate that they're targeting right now based on the data collection. So it's not a supposition.
We've seen enough data that we know with absolute definition that the price that they're targeting is way too low.
We'll go to Ricky and then we'll go to Patrick after
So, a couple of questions. First of all, on the receivables one, when I think about the things that are different between this year and last year and that are unique to you is the fact that you did sign an agreement with Optum, right, to do the collections. So when you look at what happened, when you look at the visibility that you have, what is the role of Optum 360 and the change in the system to what we are seeing with collections?
Yes. Well, let me start and then Mark will go through the details of this. First of all, what we did with Optiv was outsource our billing operation. And so essentially, Ricky, we're taking the resources and the systems and the processes that we use for years and the rebadged is Optum, okay? And obviously, by working with Optum, we believe there's an opportunity for us to get better.
I mean, that's part of the opportunity we see for patient concessions as well as denials as well as the efficiency of our billing operation. So what we are doing now, and Mark will specifically address this, there's nothing that we see here that has anything to do with that change, okay? But there's an opportunity because of who Optum is and what we believe and why we formed that relationship. We're going to be working together to get smarter and get more intelligence of what we can do to get better at how we estimate revenues, at at a much more granular level than we ever have done historically.
Yes. I mean, what Steve said is absolutely correct. This is not an issue with Optum. Remember, we had Optum for the full year in 2017. As I just shared, everything was really in good shape.
Optum provides us the information we need for us to accrue our revenue and they certainly help us as we're driving improvement in the collectability, especially from patients. A lot of the things that you're going to hear later from Jim, really, Optum is helping us to do a better job to proportionally collect those patient bills, which drive a vast majority of what used to be bad debt now is called patient concession. So the uncollectibility of a given bill that has been adjudicated and is agreed that we are owed money, which is separate from denials and some of the mix things and other things that make us even more agreement that we should get paid and that payment has to come from the patients, Optum is helping us to do a better job there.
So, one other question. The growth algorithm is really heavily dependent on acquisitions, at least in the near to midterm. Can you give us more details on the integration that you're doing? You talked about the cost savings, but what's the timeline? How long does it take for you to see that opportunity?
That's 1. And second of all, and it does it is tied to the whole receivable issue. On how many billing systems are you operating now? Or how many technology systems are you operating? And how long does it take?
Because the one thing when I saw that slide, while yes, it delivers it contributes to top line growth, it does raises the question of you're doing a lot in a very short period of time. Is there some capacity issue there, not financial capacity, but just operational capacity? And how should we think about that? And how should we think about system integration?
Yes. First of all, if you remember, I talked through on that slide, that's over the last 2 years. Roughly about 60% of the money we spent is on capability building. And a lot of those assets that we've acquired have really nothing to do with this issue, okay? So if you think about what we bought with MedXM around our data and services business, completely different billing mechanism outside of what we discussed here.
This is primarily centered around health care insurance in our core business, in our advanced diagnostics business. What we acquired with Provant in our wellness business, again, very different business. So a lot of the capability assets that we have acquired really are not in this at all. It's the hospital outreach, and you asked a question about integration. We have enough capacity to continue to integrate many, many more because even those are a lot of names on there, Ricky, they're not all that big, okay?
Marin is a good what you traditionally call a tuck in. The integration is very easy in the West Coast. This will be done in months, not years, okay? And they fold into quickly, we take the client base, we move their diagnostic testing catalog and directory into our domain and then we take the cost out and that affords the opportunity you saw with Mark, okay? So no, I understand what you're asking, but no, that is not a root cause of what might have caused a change.
What Mark described is our process, which we are going to get better with, unfortunately led to this right now within the period kind of discussion. And again, we wouldn't be saying unless unless we have this day, okay? We would be working our way through this to see what the real number is at the end of the quarter. Yes.
So we when we do an acquisition, we integrate the billing into our systems. We don't end up with a proliferation of billing systems through the acquisitions. To your point, Ricky and I accepted, but I just want to remind people that in our previous outlook, we're talking 1% to 2% from M and A and 3% to 5%, so a midpoint of 150 basis points. We're now saying 200 basis points. So yes, it's an increase, but we're still at that 3 to 5.
So it's greater proportion, but it's not as if it's a hugely different number that we're anticipating from M and A. And as we pointed out, that's what we've been doing. And we look at our pipeline and we're very confident. To a question about integration, when we do an outreach lab, it happens very quickly. To Steve's point on something like a Marin, it's almost overnight.
You don't get a lot it is not assets, there's not draw centers to shut down, things like that. So it's basically you just direct the testing to Quest as opposed to the hospital that sold it as if we had won that business organically and it's very simple and almost immediately the profitability of that business is the same as our core business. Some of the larger Hospital Outreach acquisitions are done. It's a little more work. It takes a little longer.
There are some synergies that need to be executed. Some of it could be staffing. Some of it could be real estate and so on, but those generally happen within a year. The capability acquisitions, and I'm generalizing here, take a little bit longer. A number of those come with a laboratory.
So when we buy a hospital outreach business, we're not buying a laboratory. They keep their laboratory. They keep it for their inpatient, outpatient. Even if we do a PLS partnership, it's still their laboratory. We're just helping them to run it.
So we're not buying something that we have to divest or shut down. Whereas in a number of these capability examples, we might have a location, an administrative center that we have to synergize in our business. Obviously, as I mentioned, we might have a laboratory. So those take a little bit longer to get to kind of their going rate of profitability.
We'll move over here to Patrick.
Yes, thanks. Maybe just one more on the collection side. Just trying to again figure out some historical context on the shortfall. You guys have mentioned timing being the primary reason we're hearing about it a few times. I guess when you look back, has there been something of this magnitude in terms of a step down where intra quarter you kind of felt, oh, and then by the end of the quarter things normalized and it wasn't even really a blip on the radar?
I'm just trying to figure that out. And then also, if you have the granularity in terms of where the shortfall came from, is it more from the payer denials or ability to collect from patients?
Certainty around it. So as you look at our methodology and the metrics, it would say, hey, your cash is what not what it needs to be for you to be comfortable with your current level of receivables. And you can walk through and say, okay, well, I know some of it is the way billing. I mean, there's a lot of things that we understand. But ultimately, to not make some sort of an adjustment, I have to have absolute confidence that all of that cash is going to come in.
And just prudence says at some point, even though I believe I'm going to get that cash, at some point, I've got to take a reserve. And that is our methodology. And at some point, that cash may come in. However, it's lagging enough that our tried and true methodology says at this point, I have to assume that I'm not going to get that. So I know that's not as precise an answer as you would like, but that's the way we do it.
Obviously, when the if the cash does not come in and not we're not waiting until that happens, but obviously we're looking at that now, then we get to the granularity of figuring out. So why did we think we get what was the change? So was it a I went back to my earlier explanation, how we do revenue. Was it a higher denial rate than was on the surface? And certainly, when certain test categories are getting a high denial rate, we've shared in the past, Anthem was denying part of our PDM, Singa was denying vitamin D.
That is a large enough level of denials that it hits our radar quickly. We say, oh, and we work to address it and we immediately make a decision to impact our revenue recognition saying that this is a real issue that needs to be addressed. In other cases, you can just have a lot of small changes in denials. But when you're talking about doing 150,000,000 requisitions a year, you're talking about almost 40,000,000 requisitions a quarter. When you're talking about 1,000,000,000 and 1,000,000,000 of dollars, all it takes is small changes in that macro assumption that can add up to material numbers.
Now the good news is because we're looking at this all the time, it's worked. And as I said, you look at 2017 and there's not any evidence that this didn't work exactly. So now we got to figure out, okay, what happened this year to your point. And but first, I have to get to the end of the year and say, did something happen and what do we need to do to correct it. But no, I've not had inter quarter points where I looked and said, hey, it looks like we've got an issue of this magnitude, but we've had inter quarter both directions.
I've had good guys too, inter quarter that we're not inconsequential based on this methodology.
Just a follow-up to that point, Mark. So why does this seem to be more company specific? Or is there something more industry wide that you're seeing with patient denials or payer denials? And then the second part is, I think in the past you've talked about kind of like building capabilities on benefit verification, right? And so how does that play into the part where you talked about patients who actually don't have coverage getting tests that you're running?
So
on your question about company specific and denials, as I said, this particular issue, I don't yet have it figured out, A, what the issue whether we have an issue, how large the issue is, I know there's a potential for the issue and that's why we're projecting this. Don't know that it's all denials. I think certainly we've talked about denials in other areas. They are not Quest specific. Vitamin D denials, Anthem's approach to PDM, everybody is being impacted the same way.
Those are not Quest specific items. Also had some people we've talked into the last couple of days, and I'm sure you know about this more than I do, as we were sharing some of our thoughts, we said, yes, a handful of hospital systems have also hit the receivables based on some payment issues. So that would suggest it's not just a Quest issue. But again, I don't have that data that came from some bankers we were talking to. So on the collection and our continued efforts, we are collecting a greater proportion of patient responsibility.
The issue is that we are getting more and more of our revenue from patients. And because you're going from and again, this is separate from the dials, because we don't typically record the revenue. We certainly don't do it willfully. It's only when we discover it after the fact. So it's not a uncollectibility issue as it is with patients where we say, hey, the patient owes us.
We know they should pay us. So a majority of our uncollectibility comes from patients. We're getting better at that. The problem is because it's such a order of magnitude difference than the uncollectibility on all our sources of revenue, as you see a mix change to those patients, it creates a headwind. And that's where OPTIMA is really helping us to work on that to offset that headwind.
And we are making progress, but the problem is we continue to see more and more of our revenue coming directly from patients.
Over here, Mark, and then we'll do one more. Then we'll have another Q and A session at the end as well.
Great. Thanks. So Mark, you showed a slide where you characterized 2019 as the peak of reimbursement pressure and that you expect reimbursement pressure to moderate a bit in 2020, moderate further in 2021. But under PAMA, we could see reimbursement cuts up to 15% per year under the new collection period. So I guess I'm sort of not understanding the disconnect between cuts potentially getting worse and pressures moderating.
And so part of the pressure moderating had to do with the health plan access in 2019 that I showed you where it's not just United, it's couple of places going from out of network at higher rates to in network. Obviously, we're fully expected and committed to enough volume to offset those price headwinds. But that for all intents and purposes goes away after 2019. On PAMA, my comment was, if you look at the current data, okay, it says that the weighted volume median is somewhere 63% to 64%. You take 30% out of the 1st 3 years, it says you've got another tail, okay?
Now, as I said, that could move, but the law of big numbers says that to move the weighted median and millions of data points, it's just not likely it's going to move dramatically. And I happen to know the commercial price changes for my business and therefore do not anticipate certainly we would be a driver of a large change in that calculation and we were a very large part of that database. So that's why I don't want to caution, because we don't know how they're going to execute it. And that's the big wildcard. But if you look at the data that was collected previously and you assume that they collected similarly and that prices don't move materially, which I think is a fair assumption, then yes, there's a tail in 2021, but it's not going to be as large a change as you're seeing in the 1st couple of years.
And then it should be largely behind us.
In that data that Mark referred to, because PAMA is all about paying or getting paid by Medicare based upon market based rights. We know that the PAMA cuts, which were initiated with the refresh of the clinical absence fee schedule last year and starting this year, we know they're going way beyond based upon the real data that should have been collected. And that's what we're working on, making sure we can get a better data collection process. You might have seen that CMS and one of the litters turns of the regs is now putting in a mechanism to get more hospital data in the data collection in 2019. So that will be helpful, but we're not stopping there.
We're appealing it in court. We're working with legislative solutions. We believe that the 30% went too far and the data supports it.
One more from Dave over here. And as I said, we'll have another Q and A session at the end as well.
I guess a 2 part question. First, Steve, just on M and A in the pipeline. Sure. When you're out talking to folks, do most folks have a clue in terms of the incremental nature of PAMA or do you think there's another kind of moment coming from a lot coming for a lot of your competitors as you get into early 2019? And then just the second part of the question, Mark, just on collections, just one final one.
Is it fair to assume that same store, I guess, for lack of a better term, collections are flat or improving and the challenge is basically coming pretty much exclusively from mix shift towards growing patient responsibility?
Yes. So the first part of that question, I referred to on the slide here, Dave, is that I spent a fair percentage of my time talking to hospital CEOs and CFOs and the C suite about their lab strategy. And surprisingly, I showed it on the data, very few are actually aware of PAMA, but we are raising their visibility. And then when we bring it to the table, they immediately write it down. We talk about the opportunities because it's getting more and more tense with hospital systems to be able to pay the bills.
We most often get that next conversation. Let's start to work through this and say why is that. Well, they've got a lot of things on their plate. Laboratory is a piece of their operation. From the internal team, they're not going to make this visible and it's the 1st year.
So when we get into 2019, now it's not going to be just 10, it's going to be 20, it's going to be notable. We're making it very visible. The hospital association is becoming much more aware of it and that's creating a catalyst for us to continue these conversations. Our funnel for prospects, both what we talk about with our hospital strategy as well as for acquisitions, our outreach continues to grow. And you'll see later a distribution of all those systems.
And there's some chunky ones as you see in any market, but there's a long tail. And so we're putting in place a process to go after some of those smaller tuck ins that are easy for us to integrate. And we think those are actually in some places very good acquisitions and that's part of the ambition around 2%.
And the answer is yes. So when you look at each of the sources of our cash and what we're collecting, our collection rate is either flat in the cases where it's already extremely high or improving and it's the mix that's and obviously because it's called patient concessions, but that's driving that patient concessions number up slightly higher. And again, we don't know precisely, but as we said, we suspect based on data that came from 3rd parties that you saw an increase in the average deductible this year. So we didn't see a dramatic increase in the number of people who had a high deductible plan. And that's what we had anticipated and built our assumptions on.
But what we hadn't been on our radar is, hey, the average deductible went up by several $100 So therefore, more people are actually bearing 100% of their health care costs and that certainly has an impact on our business.
Okay. So thanks for your questions. Thank you, Steve and Mark. We're going to take a 20 minute break and come back and we'll hear from the rest of the team. So please be back in your seats at just after 10 o'clock.
I keep Ladies and gentlemen, please take your seats. The meeting will resume momentarily. Thank you. Ladies and gentlemen, please take your seats and silence your cell phones. The meeting is about to resume.
Thank you. Ladies and gentlemen, please welcome back Sean Bevec.
All right, guys. We're going to get All right, guys. We're going to get going with
the second half of our day or morning. I would
like to invite Jim Davis, Executive Vice President of General Diagnostics and Everett Cunningham, Senior Vice President of Commercial to the stage to kick us off for our next presentation.
All right. So good morning and welcome back. Everett and I are going to go into a little more detail on what Steve talked about this morning, namely what is the opportunity from this health plan access, and then we talked about the hospital space as well, And what are we doing to grow our share and continue to work with health systems around the country to help them run their laboratories more efficiently and, where possible, to partner with them or outright buy their outreach book of business. So let's focus on the health plans and the network access side first. So Steve showed a chart earlier, with UnitedHealthcare, with Anthem of Georgia, with Horizon, we now have access to 43,000,000 lives that we previously did not have access to or we had access to them, but we had to go try to get those lives an out of network basis, which as you know, can be very, very difficult.
So I heard the question earlier, how much of this are you going to capture in 2019? And while I'm not going to specifically talk about 2019, what we show here on the right hand side is this is our aspiration and it's to capture about 25% share of those available lives and the lab work that is thrown off from those lives. And why 25%? How did we pick that? Well, that is our commercial share today when we look across the United States.
So when we talk about Aetna, other Anthem plans that were in network, the Blues plan, Cigna, Humana, on average, our share in markets across the U. S. Is about 25%. So that's the goal we set for ourselves over a 3 year period. We want to get 25% of those lives and the lab work associated with that.
And as we discussed, so that's a $4,000,000,000 market opportunity that those 43,000,000 lives account for that we previously haven't had great access to. And so if you do the math, that 25 percent of $4,000,000,000 we expect to get about $1,000,000,000 worth of incremental business over the time frame that we're talking about here this morning. Now in order to go get that lab work and find those lives, you start with, well, where are the lives? Where are they located today? And we know where the UnitedHealthcare lives are.
They tell us. And if you look at the states that I show here, California, Texas, Florida, New York, Georgia, New Jersey, these 6 states, by the way, account for 40% of the lives in the United States. And they are the biggest states where UnitedHealthcare members and obviously Horizon here in New Jersey and Anthem in Georgia are. So let's take California. Our access in California before we got a network with UHC was is 81% and it's going up 10 points with UHC.
Even without UHC, we already have the leading market position in California today, even without UHC. So we serve many and many of the doctors and they simply peel off that UHC work that we're serving to other lab providers and we're going to go capture that. Texas, the same thing. Even without UHC, we have the leading market share position in the state of Texas today. We have phenomenal presence in the Dallas, Houston and Austin marketplace, and we're going to capitalize on that.
Florida is even the strongest. Florida is probably the strongest market position that we have in this country. We have access to 82% of the lives. With UHC, it takes it up to 96%. And again, we believe our strong market position will allow us to capitalize on that.
And you can see the rest. In New York, obviously in Georgia, our presence has been small. If you're not in network with Anthem, if you're not in network with UHC, that just kind of leaves Cigna, Humana, Aetna. And so our position there is significantly strengthened. And New Jersey, without Horizon and without UHC, you can see our commercial presence is relatively small at 31%.
It takes it up to 86%. And we believe we've got a strong home field advantage here with our headquarters with a large laboratory in Teterboro, which I'll talk about, what we're doing to evolve that here in the state of New Jersey. But we believe with this kind of commercial presence already, with this kind of leading market position in the 4 of these states, that we're going to capture a significant portion of that $4,000,000,000 opportunity that's in front of us. So I'm going to turn it over to Everett right now. He's going to get a little more tactical and talk about, what do we have to do with physicians and patients to win it and get a little more tactical and show you where that work is and how we plan on grabbing it.
So Everett?
Thanks, Jim. Good morning, everyone. I think it's important to know that when we went through the negotiations with the health plans, the health plans actually wanted us in network. The reason is because it benefits the plan itself, it benefits patients, it benefits the members when they have actually access to a quality national lab like Quest Diagnostics. So that strong partnership with the health plans was really, really important.
But then also, we need to have continued engagement with 3 major segments: Employers, members or patients and also physicians. So I want to illustrate not only the engagement or partnerships that we currently have with them, but how we're taking that to the next level to give us the best opportunity to drive the number one growth opportunity that we've had in the last decade, more than decade. So first, let me start with employers. So the great thing is we already have great relationships with employers. You see there that we perform drug testing for more than 2 thirds of the Fortune 500 companies in the world, which is great.
So we already have access to them, great partnerships with employers. And that really stands as the base in terms of us providing diagnostics work to their employees. Number 2, they want really good quality diagnostics and they want that at an affordable price. And how do we do that? Well, we actually have lab redirection programs and not just redirecting the lab, but when we redirect it, you'll see that we are proven to save 30% to 60% on outpatient lab claims.
So again, high quality laboratory work for affordable cost. Employers want to keep their employees healthy. They talk about, you know what, let's not really focus on sick care, but let's focus on keeping our employees healthy. And we are absolutely in the sweet spot when it comes to health and wellness. We're the largest health and wellness screening company in the United States.
And we actually screen more than 3,000,000 patients annually. So again, the relationship that we have with employers to when they're going to move that work to Quest Diagnostics, we have really good relationships. And then around sick care, we want to move the cost curve when it comes to sick care. So we need to make sure that we really focus on those disease states that are meaningful for employers. One example of that is around our colorectal cancer screening test.
And you'll see there, our INSURE 1 results in lower false positives and fewer unnecessary colonoscopies. And employers really, really care about that when they can offer that in partnership with Quest Diagnostics to their employees. So this is one important segment that we're going to focus on to take advantage of our new in network status of more than 43,000,000 lives that we have an opportunity for. Number 2, patients. And you've seen through walking outside in terms of patients are playing more of a role themselves in their healthcare.
They're more accountable for their healthcare. Patients also care about when they work with a lab, they want convenient access. In the 50 states, there's not a better lab across the country that offers convenient access. Steve talked this morning about the 6,000 patient access points that we have. We have more than 2,100 patient service centers across the United States, more than 4,300 in office phlebotomists.
We talked about our innovative consumerism where we're going to where patients are in our partnership, our joint venture with Walmart and also our partnerships with Safeways across the country. This means a lot for patients. They can step out of their door and they know Quest Diagnostics is right there. In addition to that, taking it to the next level, they want to make sure that they can get their test results at the palm of their hand. And you'll hear throughout the day, my colleagues are going to explain how we're taking the digital enablement to the next level to where they can get test results, real time adjudication right in the palm of their hand with their iPhone, which is fantastic.
And all of this, we're doing it with still offering an affordable price, which is very important to patients. That last segment and just as important are those decision makers that are saying, you know what, I'm going to move my lab work to Quest Diagnostics and why would they do that? Number 1, we have to make it easy and we are making it easy through our quantum tools and not only those quantum tools but it has to fit into their office flow. And we get feedback all the time in terms of, you know what, you're not disrupting my office flow, but your new innovative tools fit right in nicely. Simplicity.
One of the difficulties of being out of network is physicians then have to actually pick and choose. You know what, I want to choose a lab that's actually in network. And as Jim talked about across the country, now on average we have 90% plus access across the country. So if you think about a physician and I actually think about my wife, my wife is actually a physician here in the city. And she tells me, my office is complex.
I have patients that come in. They have Emblem. They have Aetna. They have Anthem. They have United.
They have Cigna. They have Humana. And you know what, the last thing I want to do is pick and choose. The great thing is we have the most comprehensive health care coverage in the last decade, which is fantastic. So they don't have to pick and choose.
They know that we're going to be in network with the percentage, large percentage of their plans. And what does that offer? It offers no hassle to patients. That's the last thing that physicians want is to hassle their patients. So this new in network status, again, more access is fantastic and allows the physicians to come to us with ease.
Lastly, my job is I go out and I call on customers. My team goes out and they call on customers all across the 50 states. And when we call on customers big and large individual physicians, health systems, what they say to us is, we want to go to a lab when there's one stop shopping. Quest Diagnostics, we have the most comprehensive test menu in the marketplace. From your general diagnostics to your most advanced testing, They don't have to pick and choose.
They don't have to go to boutique labs. They can come to Quest Diagnostics. And that comprehensive test menu means a lot for physicians again to move their work, makes it easy on them. Not only that, it's backed up by amazing medical expertise. And we have physicians that cover the multitude of disease states to ensure that they're partnering with physicians.
And then lastly, they care about their patients. So we have proactive communication, proactive training that goes out to physicians that really kind of completes that partnership. And when there is a problem, we can make sure that we have timely problem resolution, which is important. So as Steve said, we're not waiting for January 1, 2019. We've actually started.
We made the announcement with United back on May 24 at 9 am in the morning. And right after that, our sales team and our entire company actually put a plan in place to ensure that we're calling on the right physicians, our right customers to start driving this growth opportunity. So let me break this down. We have a strong line of sight as a company to our top 25,000 accounts. Those accounts that are already doing work with Quest Diagnostics, in addition to having the highest opportunity for United.
But let me break out the marketplace. So there's about 300,000 accounts out there that kind of order laboratories work. Of the 300,000, 170,000 are actually active Quest accounts. But to really focus our sales force, on May 24, we pushed out 25,000 accounts across the country. Now even breaking that 25,000 accounts even more, and by the way, the 25,000 accounts, they have an opportunity of about $700,000,000 in terms of United.
But of the 25,000 accounts, 11,000 of those accounts are Quest loyalist. Now what do I mean by that? They are sending us already the majority of their work. And throughout the years they signaled to us, once you get in network with United, I'm going to send you the United work also. And we're actually starting to see that work come in because of our focused targeting and calls.
The other 14,000 accounts, they actually are Quest users, but we're finding that they split. They're mixed users. They send to multiple labs. But they have a high opportunity for United to move that work over. We're also calling on those 14,000.
So like I said, the 25,000 accounts represents about a $700,000,000 opportunity. Here's the great thing. Since May 24, we've called on 100% of these 25,000 accounts. Also, we're averaging about 5 calls to these folks because we know that multiple calls, talking about our value proposition, talking about how we can differentiate in the marketplace is critically important. But we're not going to stop there.
There's another 40,000 accounts, we call these the medium accounts, kind of medium in terms of United opportunity, but they're critically important because they're still using Quest Diagnostics. They represent about $750,000,000 And then the longer term accounts, another 20,000 accounts represent about $300,000,000 So I'm here to tell you that we have granular focus, a granular plan, really what I would call hyper focus on the accounts that we're going to call on. So I talked about those loyalist accounts. This is just a depiction. As you walk down the street, you see this all the time.
The Loyos accounts of those doctors' offices that have that one box outside, that's the green box, that quest box, that's what we shoot for. The mixed users that I talked about, they kind of split their laboratory work. They'll have multiple boxes sitting outside. Our goal with our incredible in network status now is to move our customers to the right. We feel really, really good positive and upbeat about the opportunity that we're going to drive.
We have been driving and we will drive come January 1, 2019 with our in network opportunity. So let me shift gears and talk about another growth opportunity for Quest Diagnostics, and that's around our hospital health system customers and marketplace. As Steve said, we are continually calling on C suites of health systems. And as the market is consolidating the role that laboratory plays in my strategy. Why?
Because decelerating revenues, they're being challenged by reimbursements and Mark kind of highlighted what PAMA is doing. And they might not be thinking about it now, but trust me it's hitting kind of their bottom line. Steady cost growth in the laboratory space, I'm going to break it down on the next slide. Laboratory costs are significant and they're starting to see it. So if you're starting to think, do I really want to pay for all the personnel that's in the lab?
Do I want to pay for all that lab equipment? They're starting to think that. And then obviously, all this is shrinking their margins. Let me break down the total cost of the hospital. So on the left, hospital costs.
14% of those costs are outpatient. Another 30% at the bottom is the inpatient. They're inpatient costs, the kind of room and board. 56% of the hospital costs are belonging to ancillary services, kind of ancillary departments. So let me break down the 56% because that's where lab sits.
So of the ancillary department costs, laboratory costs are 12% of the 56%. And if I break down the laboratory costs even more, kind of double click on that, almost half are personnel or FTEs. Another 25% of that are supplies and reagents. Another 10% are equipment, another 10% are what we call reference testing and then another 10% are blood components. So you'll see there that hospital lab now represents a significant cost center for the hospital, the C suites, the CEOs, the CFOs, the CEOs are starting to say, you know what, do I really want to incur this cost moving forward with the market force changes?
Here's the great thing. When they talk to Quest Diagnostics, they can have a lab strategy discussion. Why? Because of the breadth of what we have to offer. And we've been out there having these discussions and we've been very successful in the past and we think that these opportunities are going to pick up.
1st around lab reference testing. This is more of the foundational. It's a $4,000,000,000 marketplace of where we are. Quest Diagnostics is the market leader. We do more than $1,000,000,000 in this space.
Why? Because they come to us for that esoteric, that advanced diagnostics testing and we do it very, very well. The next is around managing their cost. Again, do they really want to be in that lab space or can we help them manage their lab? And it could be anywhere from full lab management, of which Jim will highlight in a second, we are doing those across the country, to maybe doing a supply chain.
Because of our breadth, We actually can buy supplies at a better rate. So that lab management cost optimization, that's more of a $30,000,000,000 space. Or do we have a really big strategic partnership, high level impact? And a great example of this is around monetizing their outreach and doing an outreach acquisition. And Jim is going to break it down on how this has picked up over the years.
And we think it's going to increase all around doing joint ventures, of which we have several joint ventures around the country that have proven to be beneficial to the hospital itself and also Quest Diagnostics. So to give this more color, I'm going to throw it back to Jim and Jim is going to go through the 3 segments. Jim?
Okay. Thank you, Everett. So again, I'll walk through these 3. The first one being this $4,000,000,000 we call it a reference market. So this is what hospitals send out.
These are tests that they can't do in house or have chosen not to do for cost or complexity reasons. So the first question is, well, why do they choose Quest? And you may recall from one of Steve's slides that over 50% of the U. S. Hospitals have chosen us today.
So we do work for over 2,000 hospitals. When you bundle those hospitals by health systems, over 70% of health systems in the U. S. Actually do business with us. So it's really based on 3 things.
1 is our clinical leadership. 2 is the experience that we provide to hospitals. And then the third part is our advanced solutions. So on the first piece, the clinical leadership, we have the biggest, broadest, deepest test menu in the industry. I'm not here to brag about that, but we in addition to this $1,000,000,000 there's we also do another $100,000,000 worth of business with other commercial reference labs.
So labs like the Mayo Clinic, labs like ARUP, even LabCorp will send us some work now and then based on the test menu that we have. When you look at the tests that hospitals order from us, they're not the routine, glucose, cholesterol types of tests. These are tests that are very sophisticated tests, And they're really tests that we've developed. These are called laboratory developed tests. Many of these are in the infectious disease state space.
Many of these are in the cancer space. Those are really the 2 biggest categories of tests that are ordered by hospitals. And who develops those tests? We have a lot of MDs and PhDs in the company, but about 50 of them are focused on really new product or new test development. So we continue to expand our test menu each and every day.
The second piece is the customer experience itself. And when a hospital sends a test out to us, it's generally because they have a patient that is in a bed sick or it could have come from an outpatient procedure that the hospital did. But it's generally because there's a patient that's sick in the bed. And so they really want rapid turnaround time. And with the location of our esoteric laboratories, we have 4 primary esoteric labs today, 2 in California, 1 in the middle of the country in Texas and then 1 on the East Coast in Chantilly, Virginia.
We can offer very rapid turnaround time based on our geographic location. So some of our competitors just have one major laboratory where they do all of this advanced testing. We have 4 and as a result of that, we can get pretty rapid turnaround times. We have a team of 200 dedicated customer service reps that just serve hospitals. That's it.
They don't talk to physicians in the outpatient market. They just serve hospitals. And these are not routine calls about where are my tasks, what are the results. These are very consultative types of calls where physicians will call us and look for recommendations on a specific test to run given the condition that they're dealing with, with the patient that is in the bed. And then finally, we have about 35 genetic counselors.
When physicians or other genetic counselors in hospitals call us and they're looking for what type of test they may want to run given the, again, clinical condition of the patient. Our genetic counselors are there both to help recommend the type of testing as well as help management services. So if you take a health system that may have 10 to 12 hospitals, 10 to 12 different ICU units, very often the person looking after those laboratories will call us and say, can you give us utilization reports? They want to understand what their physicians are ordering in the ICU department, as an example, across the 11 institutions. And increasingly, we're providing recommendations to these folks.
We see one doctor whose ordering patterns look either too high. We may see another physician where the ordering patterns are too low or we may be able to recommend to the lab director if you switch from test A to test B, this could potentially save you money and also help the patient. So that's that $4,000,000,000 reference market. The next piece is what we call our professional lab services. This was the $30,000,000,000 chunk in the middle on that previous slide.
So hospitals spend about $30,000,000,000 to run their own hospital laboratories, both for inpatients as well as some of the outpatient work that they do. And increasingly, as we've discussed in the past, we have a service that goes in and offers to help them run those laboratories better. And those could be consultative types of services all the way to we're going to go in and we're going to put Quest employees, Quest equipment and outside the laboratory in the four walls of that hospital, you'll see a Quest diagnostic sign. And so here's the range of services that we offer. Number 1, we can just go in as a consultative type of process.
We look at who they're using for their reference partners. We look at the prices that we're paying. Many times we find these hospitals will be using 20 or 30 different types of laboratories, very boutique laboratories. They have a hard time getting physician consensus over who they should use. And we simply come in and try to provide them with what we think is the best recommendation on who they should use, also with some financial data that says if you're able to consolidate, you can save X dollars per year.
The second piece is we're going to take a more active role in helping you run your laboratory. When we go in and look at the typical test menu in a hospital, if we look at 100% of that menu, what we find is about 70% of the tests absolutely need to stay right there in the four walls of the hospital to address the critical needs of their patients and the timely needs of those patients. But about 30% of the work that they're doing really shouldn't be done there based on a cost analysis. And remember, the laboratory is a cost center for these hospitals. So anything we can do to reduce their costs improves their profitability because they're paid on a DRG formula.
So they're trying to manage costs based on a fixed revenue that they're getting from the DRG formula. So we optimize the test menu. We can bring them our purchasing contracts. So for reagents, supplies and equipment, which is always going to be lower cost than what they can procure at. We'll bring automation.
We'll bring our set of quality processes and metrics. Increasingly, we're having laboratories come to us and asking us to run the laboratory, not even so much for financial reasons, but because they've failed a cap inspection, they're having quality problems, they're having difficulty getting talent to run their laboratories. And then on the right hand side, again, these advanced data solutions, whether it's a reference partner or we're in the four walls of the hospitals, the expectation is that we are consulting with their physicians, recommending tests that they should do, recommending tests that they shouldn't do, providing utilization management reports and looking for ways for them to optimize the testing that they're doing on patients. So that's that middle chunk, that $30,000,000,000 Now here's just a representative list of the roughly 120 hospital laboratories that we're managing today. You can see some premier names up there.
HCA is in their Denver marketplace. We manage the labs of those 6 hospitals. And I can tell you negotiating with HCA and trying to convince HCA that this is a smart move, They are a financially driven profit minded institution. And so our value proposition, we were able to convince them that we could take 10% to 20% of the cost out of running their laboratory. Some other names up there you see, Monofior, Barnabas and SpiroRite in this local market, but we have a nice breadth that is across the nation.
Now as we look out into the funnel of opportunities that we're looking at right now, we have over $280,000,000 worth of opportunities that we're currently in discussions. These could be very near term. We're about to get the deal done, all the way to some initial discussions that have just started in the last few weeks. But we expect that we can generate at least 50 basis points of growth from completing these types of programs where we come in and run these hospital labs. Okay.
The 3rd chunk that we had on the chart was the $19,000,000,000 worth of work that a hospital goes and gets from their physician community, whether they own them or whether it's an independent physician. So this is revenue that's going into the hospital from the work that they're doing, mostly third party billing of work that comes from the physician offices. And as Steve and Mark described, we think much of that work that goes into these hospital labs. Number 1, the hospitals generally don't understand if they're making money on this or not. Their primary mission is to run a hospital lab to serve these sick patients in beds.
So very often they don't understand things like what the PAMA cuts are going to do to them. They'll generally understand after a year of seeing declining Medicare reimbursement. So here's just a list of the 9 transactions we've completed since we last saw you. The clinical laboratory partners in Hartford, Connecticut, PeaceHealth is a large multi hospital system in Oregon, Washington, Alaska Dignity, Providence, you can see. Hurley is one in Flint, Michigan, not that big, dollars 4,000,000 think about these outreach deals and how we go after them.
Here's just a look at over the 3,000 hospitals that do outreach work today. You can see that the top 100 institutions own about 40% of that $19,000,000,000 market. And those large types of deals, dollars 30,000,000 $40,000,000 $50,000,000 We have a colleague, Dermot, who you'll hear from later that is really has a central team that is highly involved in the discussions and negotiations. But if you go over to the tail now, the roughly 2,500 institutions that are kind of playing around in this outreach, not in a very meaningful way. Again, these are the $5,000,000 $6,000,000 $7,000,000 revenue types of opportunities.
They're really, really nice. So as much as we want the big ones, I can tell you stringing together $5,000,000 $7,000,000 deals is actually pretty easy for us to do. And it's easy because all we're doing is shifting that customer book of business from a hospital lab to our lab. We don't have to take on employees. We don't have to buy a laboratory.
We might take a few phlebotomists, some logistics, some couriers, but they're really simple, easy, quick tuck in deals that our regions have been empowered to do. Now I'll just give you leave you with one example that we completed since we saw you laugh. As I mentioned, PeaceHealth is a large health system out on the West Coast based in Oregon, but hospitals in Washington, Oregon and Alaska, 16,000 caregivers, 10 medical centers. And this is an institution where we combined all three. So we bought their outreach book of business.
They were serving independent physicians. They were serving their own physicians. We purchased that book of business from them. We then went in and we now run the 11 laboratories within the PeaceHealth system with Quest people, Quest employees, we bring our purchasing contracts, our supplies contracts. We standardize the types of equipment they're doing so that they get the same types of efficiencies that we get.
And then we became their reference partner. Obviously, if we're running their labs, we're going to be their reference partner. The final thing is a result of getting this deal done with PeaceHealth. We also got access to a payer that we were currently not in network with in the state of Oregon, which helped facilitated this deal as well. So what did we get out of this?
We've doubled the size of our business in the state of Oregon. PeaceHealth got significant cost savings as a result of this. And what I would tell you is the physicians and patients in the Oregon community are getting better results, quicker results and we think higher and better medical quality. So in summary, for both the health plan access as well as the health systems discussion here, first, this expanded access is going to help us generate additional growth. We talked about a $4,000,000,000 market opportunity.
We showed you what our aspirations are at a minimum 25 percent share of that $4,000,000,000 We know where the work is. Everett showed the 170,000 accounts that we serve today, there's at least $1,000,000,000 right in those accounts. We don't have to win any new customers. All we have to do is knock on the doors of the customers we're serving today to tap into that first billion tranche that we think is out there. And then finally, we think we're best positioned to partner with hospitals, whether they choose to grow, partner or outsource their outreach business, whether they choose to just use us as a reference partner or whether they're interested in having us come in, manage their laboratory for lower cost and better quality.
So with that, I would like to now introduce Kerry Eglinton Manor.
Thank you. Thanks. I'm really excited since Steve introduced Advanced Diagnostics 2 years ago to all of you to share our story and what we've been doing. And I'm going to absolutely tell you about why we're so excited about the growth opportunity. But first, I want to give you a sense for it.
And I want to show you by having you hear from some of our super talented folks about the technology, our science and innovation and some of our capabilities. So we're going to start with that.
By investing in R and D at Quest, we're able to not only develop new applications, which can add value to the healthcare system, but we're also able to engineer those solutions so that they can be a very high quality and lower cost over
time. The salmon Capistrano Nichols Institute is one of the research hubs. We have multiple across the country. This happens to be one of the largest. And so we will develop the cutting edge assays right here.
We test with 1,000, 100 of 1000 of samples and once we say thumbs up this is all good, then it will be moved out throughout the company.
What works for one part of the company, we bring it to other labs such as Las Vegas Lab, which help us reduce our turnaround time. Over 95% of our work is completed before 8 am every day.
We're lucky to have almost every technology that is relevant in diagnostic testing today, testing that uses molecular methods for infectious diseases, advanced mass spectrometry to measure small molecules and proteins, next generation sequencing to do genetics, and we're continually improving the quality and scale of those technologies.
To me, advanced diagnostics is a combination of 2 factors. There's a personalized medicine factor, where we're actually looking at your genome, for example, and your phenom and how you're going to respond to a drug. And then there's replacing all the technologies which may have flaws or weaknesses in them with newer technologies that come along. Liquid biopsy, very high end area that we believe is going to have a major impact on oncology, our informatics, huge amount of informatics work. And then we move over into biomarker discovery and biomarker analysis.
So for example, Alzheimer's disease. All of those things combined is what puts us to the forefront.
Genetic testing is complicated and so even the results are complicated. And a lot of the doctors that are ordering testing now aren't genetics experts. We're there to translate it into usable information so that they can explain that to their patients.
When we're talking to a health plan, we can explain why our test needs to be done, needs to be covered and the benefits around it. If patients need that testing, they're really only going to get it if it's a covered benefit. And utilizing my team to help explain that goes a long way in
patients.
One of my groups here at SJC develops a lot of automation that gets tested initially here.
We're in a position to deliver technologies and automate them throughout our system.
That now allows the high skilled humans to actually apply brain and be using their degrees or advanced degrees to look at the data at the end of it rather than sorting samples.
The advanced technology capabilities that we have contribute to our ability to deliver solutions to the population. One example would be our home based self collection kits.
And all they have to do is prick their finger, put it in the mail and send it back get a result. The level of effort that that person has to go through to actually do that drops and you are going to catch some people that weren't getting checked.
And so by having technology like this, we can prevent chronic disease and we can better manage chronic disease, which accounts for 70% of our costs of our healthcare system.
We're going to be able to target tests and treatments specifically to an individual. We talk about personalized medicine and what does that mean? Well, that's what we're doing today and it's going to expand much larger scale.
Our future is only as good as our ability to bring new tests and differentiations to the marketplace to help patients, to help clinicians. That is our product.
We have the full menu here of testing. We also have the R and D people that can answer questions. We have physicians that can answer questions. We have our PhD directors that can and our genetic counselors.
Whether it be in pharma or biotech that could beat this place.
Our scientists spend a lot of time engineering our solutions to continually improve the quality, the automation, the throughput. There are very few companies in the world who can compete with us on that in the
future. So I hope it gives you a sense of our excitement as well as the opportunity. Steve described it when he started today, which is that this is about precision medicine and precision medicine is the future of healthcare. So 20 years ago, ushering in this era of precision medicine was the FDA approval of a revolutionary drug with Herceptin that rather than just blasting a woman with breast cancer with chemotherapy, we could begin to understand what was driving her tumor and how to specifically target it. And this era is so exciting because even as recently as Tuesday, the FDA announced accelerated approval of another revolutionary drug and there are tens on the market already and hundreds more that are coming.
This drug, the TRACV, not only can target specific cancer much in a much bigger way. The TRACV can target the genetic drivers regardless of the tissue type and regardless of the cancer. The opportunity to better treat patients, to have a different quality of life, to change the paradigm of health, economic and clinical value is in precision medicine and advanced diagnostics unlocks all of this potential. It is the genetic and molecular insights that form the basis of how we will change health care moving forward. So it's a significant opportunity and here's how we're positioned.
In what we think is about a $5,000,000,000 opportunity and bigger depending on how you characterize it, we're a big leader. We're $1,000,000,000 today. We have significant growth and we're incredibly well positioned. You heard Jim and Everett describe why hospitals can't do this themselves, why they don't, why they come to us as a reference lab because we have tremendous relationships, tremendous expertise and they absolutely count on us when they are looking to do the most complex testing that their patients could possibly need. So as we increase access for patients and as we increase access to this kind of testing, what's the real challenge?
The challenge is to get reimbursed. And what we are absolutely differentiated in the market in is our ability to do this profitably. We bring tests at scale to patients and to providers, to our physicians that get reimbursed by payers because we work with those payers, We know how to bring the evidence to bear. And with that, it's not just oncology, although in this time I am going to describe a lot of oncology examples because they are so relatable and it's because it's what our consumers know about. But the breadth of our solutions really does cross in all of the clinical areas that we care about.
And our positioning in a big market that's growing and as a leader today is positioning us incredibly well to accelerate growth for the company. So I described a bit about the landscape, and now I want to describe a bit about our strengths. So you've heard in the video, you heard us describe our medical expertise. It's not just about the innovation. There are a lot of researchers out there.
We love to partner with them. What we do well is to translate that to tests that can benefit patients that payers will reimburse. So the ability to bring these to market with the scale and bring it to patients who don't just live near Memorial Sloan Kettering or MD Anderson or Dana Farber in Boston, but into community cancer where most of care gets delivered today. Our scale and access means that the growth opportunity is well beyond the historic just, hey, you have to be at an academic medical center. We bring the science and innovation, I'll talk a little bit more about that, as well as operational efficiency.
So to do this at scale means You have to be able to take the information and make it translatable for customers in reports that they can understand, in clinical decision making that makes sense for patients and ultimately to guide patients through a care journey that is absolutely the scariest of their lives so that they know when they get genetic insights back what that means for them. What should I do differently? What does that mean for my family members and my children who might be facing the same health concerns that I am today. How should I prepare for the next 20 years? We walk our physicians, we walk patients through that process.
And what does that look like geographically? So Jim and Everett talked a bit about the scale of our and breadth of our esoteric labs. Those are full service complex labs. In addition, we have acquired a number of centers of expertise and I'm going to describe a couple of those. In Boston, it's neurology expertise when we bought Athena.
It's our recent announcement of fertility assessment expertise, which I'll talk a little bit more about with ReproSource. It's in the center of the country with our MedFusion oncology acquisition in Dallas where we absolutely are focusing on how we expand nationally into community cancer and better serve patients wherever they are. It's with our acquisition of Cleveland Heart Lab and Oxford Immunotec in Memphis, where infectious disease and the future of tuberculosis testing is getting easier and less expensive. And you saw the video on San Juan Capistrano, we affectionately refer to it as SJC. This is a hub of real genetics expertise.
But what we do well is scale. What we do well is translate those best practices. We make advanced diagnostics accessible. We make it available where our physicians are because they want local experts. They want turnaround time that is fast.
We don't want to have a single point failure like with a boutique lab where if there's a problem there, there's a problem with supplies, reagents, turnaround time, you name it, fires. We are able to shift and we are able to ensure that in the most critical times of a patient's life, hematologic cancers, blood cancers have very, very rapid development. It is critical to get 24 hour turnaround time. So our ability to do that with the breadth of our network is incredibly important. It's a huge strength.
And this translates not only here, but it's absolutely attracted global interest. Our global partnerships with leading labs across all continents except for the coldest ones. We announced October 10th our Global Diagnostics Network, which is a partnership with these labs, which will ensure that we share innovation, information and services, including the types of consistency for precision medicine where companion diagnostics, the diagnostics that go with the drugs and say whether or not they will be useful are available. That access in this partnership is very much at the core of our foundation of how we serve pharma. So we serve pharma today in the U.
S, partnering with labs across the globe where the consistency, the quality, the turnaround time and access to an entirely broader population of patients is a huge differentiator for us. We are doing technology transfer, We're doing best practice sharing, and we will continue to partner with these global leaders to make sure that the accessibility of tests is not dependent on where you live. So I've given you a lot about our strengths. We are also putting a ton of energy into closing some gaps, and I'll talk a little bit about that. The science and innovation, it's not only what we can build, it's who we can partner with.
And we do we are tremendous scalerator. We scale other people's innovation as well as we build it ourselves. We have the expertise to make this relevant and understandable in the market. And I'm going to talk more about the service experience that our customers have with us and that patients have is incredibly important to unlocking the growth here. It's not just about tests and test reports.
Questions start with, am I covered? Can I get the test? And how much am I going to pay? And I'm going to go into that in a bit more detail. And then partnerships and acquisitions are so key because the science is evolving.
The correlation between genes and disease and treatments is evolving. And what we do well is we make those results actionable. We are fundamentally Diagnostic Information Services business and Advanced Diagnostics is a poster child for how those results become actionable for patients to ultimately have better quality of life for the decisions that are made with them, making sure that it is not just about patients in the right place to get those, but broadly accessible and reimbursable because even if it's covered, if a test isn't covered at the right cost and a patient can't pay the right cost out of pocket to make it affordable for them, we know that people will not get the treatments they need. So to double click on the product innovation, the science and innovation, we absolutely have the internal R and D capabilities ourselves. Most people think that it's just maybe academic sites.
We showed you the SJC team to give you that feel for that expertise. We since 2016 have launched pan ethnic carrier screening. These are just a few. We're launching exome sequencing shortly in 2019. We use mass spec in order to get insights into Alzheimer disease and we're doing a lot of neurology that you'll have to hear more about later.
But there are so many opportunities whether we do it ourselves or whether we partner. What our partners count on is there is a lot of innovation. You see tons of companies spring up and you often see them go away. Between that time, they're absolutely hoping we will acquire them. They're absolutely hoping we will partner and that we who are great at bringing innovation to scale, it really is what we do best.
Promising innovation coming as liquid biopsy, artificial intelligence is I'm sure you've heard this that it's now to sequence a genome is now in the $1,000,000 range where it was a couple of 1,000,000,000 when it was originally sequenced in early 2000. The cost now is about bioinformatics and how you translate all of the information that we can get by sequencing a genome into usable information. We're spending significant investment and expertise to make sure we do that well. So whether it's our focus on artificial intelligence and how we use that to accelerate the insights, the companion diagnostics I mentioned, which are how we unlock precision medicine and therapy or our acquisition partnerships that are giving us new channels to make sure that in community cancer care, every patient gets access to the therapy and best quality of life they can possibly have. Steve mentioned our partnership with Ancestry and we are an engine behind the heritage testing we do.
We know how to do consumer genetics at scale and we're absolutely, absolutely taking advantage of the fact that consumers are becoming more and more aware because of companies that we call doing recreational genomics. I don't see that as a negative for us at all. We have the opportunity to make sure in the learning curve for consumers, we move from recreational to diagnostic and what's really meaningful in people's lives. So some significant progress in product innovation and strengths that we leverage. I'm going to focus from that product because I and transition to services because I told you it's not just about a test and a test report.
And as complex as the questions are in advanced diagnostics, they start with very simple questions. Am I covered for this test? The test can depend on your age. It can depend on your family history. It can depend on why you're showing up at the doctors with what kind of issue.
Authorization is a way that payers absolutely limit which of those tests, these expensive tests they'll cover for which patients. So helping our customers through the process, in some cases performing pre authorization. We've launched pilots where we perform pre authorization and there are a number of payers who say no providers have to do it themselves. So we have to educate people on how to collect family history and how to make sure the right information is provided so that patients get what they need. The next question is how much will it cost?
This is incredibly hard to do in healthcare, not just because of price transparency, but in large part because of patients' different plans, where they are in the year versus deductibles. And when you add that to the complexity of whether or not they should be having the test, a complex test, This is a key to unlocking growth is making sure that ahead of time, yes, it will change my decision if I know I'm going to pay $2.50 for a test versus $1,000 for the test. I know my aunt had breast cancer. I'm a little bit worried about it. It's a big difference.
Our ability to answer this question was so important to us that we invested in people who could manually answer the question for our physicians and patients ahead of time, while we are simultaneously making significant investments in how we automate this across the huge number of payers we have and across the huge number of plans and patients. But these are keys to unlocking growth as is the more complex question of what are those results mean. So now I know I can get a test. I'm willing to pay for it. What do I do?
What do I do if I have BRCA1 mutation and I may be more susceptible for breast or ovarian cancer. My son may have a higher likelihood of prostate cancer or pancreatic cancer. What do I do with this? Most of our customers, most physicians don't have genetic counselors at their side. We made patient facing genetic counseling available not only to help our physicians understand what these results mean, but most importantly to help patients understand what they mean and what the potential next steps are.
So services are key. We're making huge investments in how we meet and provide those services and we will continue to grow as a result. Now these are really complex issues and none of us in healthcare can do this alone. And Steve loves to say that healthcare is a team sport for this reason. It's why we're partnering to seize market opportunities across the board.
We start and I'm going to give you a little bit of insight into pharma. In the next 2 years, you'll hear a lot more about this. We are already partnering with pharma, both through our Q2 joint venture in order to help bring therapies to market and develop the companion biomarkers and companion diagnostics that go with them to unlock the value and growth of precision medicine. We are absolutely partnering today and have great examples of our growth there already. In addition, we're developing the market because guidelines and payers have to align to cover these tests for the patients who need them.
Partnering with U. S. Oncology that came through our MedFusion acquisition last year has meant that we now have access to 1400 oncologists in the U. S. That's over 10% of all oncologists in the U.
S. To work with them on developing clinical care pathways that make sure that the patient that shows up in their community with a potential blood cancer gets the same quality of care had they shown up somewhere else. And I have examples like that with Hologic in women's health with Oxford Immunotec and tuberculosis. And I just wanted to pique your interest and give you one more example on partnerships in research. So the breadth of our expertise spans with the names you know.
I'm going to give the example of the PROMISE trial because Dana Farber is looking on how for multiple myeloma, 2% of all cancers, blood cancers are one of the growth areas about $1,000,000,000 testing markets today. Dana Farber is partnered with Stand Up to Cancer and with us to look into high risk populations for precursors to multiple myeloma to see if we can identify other biomarkers that may help us and help pharma figure out how to treat it earlier. Because for today, if you're diagnosed with multiple myeloma, very, very few people are cured. 30,000 people every year are diagnosed. And what generally happens is they stay on 6 digit figure drugs for years just keeping that cancer in check.
So our ability to identify those patients earlier, identify the biomarkers that might be identifiable as precursors to the cancer itself and use that to develop treatments is a significant opportunity. So I'm going to pull this together and not describe the entire page because a lot of this genetics may be new to you and I know it's complex. But the point I want to make is with the expertise to span the care continuum in any clinical care area, whether it be oncology and this example or the next short one I'm going to share in women's health is that the growth for us is being able to partner with our customers on how we stay with them and their patients to provide insights across the care experience, whether it's the screening I described to find patients earlier and you're going to hear Jay and Dermot talk about our ability to help identify clinical trial patients for pharmaceutical companies looking for them early on in the process through to an oncologist who's trying to better diagnose the patient, figure out the prognosis for that patient and how they're likely their disease is likely to develop, which treatment will be most effective for them or to monitor that treatment with our prescription drug monitoring which allows us to see is the patient's adhering to their regimen and is their course of treatment what we expect it to be, the ability to pull that together into data analytics in the population health that helps move precision medicine forward is an enormous growth opportunity and we are right in the midst of it.
Lastly, because I've spent a lot of time on oncology, I wanted to give one woman's health example before I wrap, which is that the ability to serve a channel and our hospital relationships and the fact that we have such strength and when we get more access through payer access and we have our patients access, we grow. We have tremendous strength in women's health in our OBGYN channel, whether a woman treats her OBGYN like her primary care physician, which many of us do, or we go to a primary care physician who serves women through their entire lives themselves, our ability to treat a woman and to help provide insights into her health, whether she's preconception or post, whether we are diagnosing sexual health while STDs have grown for the 4th consecutive year in a row, whether it's health and wellness, whether it's identifying the genetic markers, OBGYNs and primary care physicians want a single lab who can do all of it. So when I'm at my OBGYN and I'm a we do today and acquiring Repro Source or whether she's thinking about getting pregnant and wants carrier screening to think about what could potentially be ahead for the baby she and her husband are trying to conceive.
Our solutions are solutions that our physicians can provide with us hand in hand, understand the process all the way through to postnatal diagnostic insights. In total, our advanced diagnostics capabilities completely support our growth strategy, completely align with our M and A strategy for growth. Jim and Evertz talked about why hospitals want to work with us. It's the same reason that our little innovators and potential partners want us to buy them. We can bring the right and relevant tests to bear at scale.
For the consumer who is becoming increasingly aware, while precision medicine is sort of 2 decades underway, patients are becoming consumers. They're beginning to understand the potential value for them in unlocking genetic insights and we are absolutely at the forefront of that opportunity. And finally, you'll hear more later this afternoon or before lunch, you'll hear more from Dermot and Jay around the tremendous potential and I know I just piqued your interest or hopefully I piqued your interest on data analytics and population health opportunity to ultimately pull it all together and to have this be the virtuous circle where advanced diagnostics insights feed the precision medicine potential for better care at better health economic value across the healthcare system. So in summary, precision medicine is the future of healthcare and advanced diagnostics has a strong growth potential as the foundation of that. We lead today.
We're profitable today, and we absolutely are well positioned with our strengths to win more. Expanding health access is clearly one of those keys, and I hope that these strengths I described for you give you the same excitements that we have. Thank you. Next, I will introduce Cathy Dougherty, who's going to talk about our Consumer Lab Provider of Choice initiatives.
Thanks, Carrie, and good morning, everyone. We've made a lot of progress on becoming the laboratory provider of choice for consumers since we last spoke to you in 2016. And what I'd like to do is start with a short video that will provide you insight into that progress. Can we play the video, please?
Quest Diagnostics wants to be the lab provider of choice among consumers and we do feel that we have a broad array of offerings that make us relevant to
them.
Consumers are looking for convenience. They're looking for a superior experience and they are looking for diagnostics providers that are there to empower them on that journey.
The patients say that they are very relaxed coming here. They like the newer atmosphere, the changes that we have done to this PSC. We have pediatric rooms because it gives that special attention and makes the children more comfortable. We have 6 iPads that makes our check-in much easier. It's just less hassle.
I couldn't believe how nice it was to check-in. I like that. I like those little pads.
I'm all about tech stuff anyway. Amazingly for an old lady, right?
There is some kind of thought and effort put into the design and the cleanliness and to me that translates into quality. If I'm coming in for lab work, I want the results to be accurate. I want the staff to be professional and it starts when
you walk in the door.
Safeway and Walmart present a really nice opportunity for us to be in locations where consumers are every single day. We can eliminate the whole waiting experience because they can be paged when we're ready for them while they're getting their shopping done.
Actually, I'm going to do that today. I'm going to go look for a trash can for my car. So, yeah, hopefully I'll be able to roll this into a shopping experience as well.
For associates that work in the building,
it
allows them to take care of their needs without having to leave and go a long way from work to come back. It's a real quick convenience for them.
They're so happy that we're here, and they just come in just to ask questions. Next thing you know, they bring their family over.
With MyQuest 2.0, we've redesigned the entire experience based on user feedback and best practices and we want to enable a seamless transition from the digital environment to the retail environment.
Individuals can come in to our online site, jump to making an appointment. They can look through the Quest Direct offering and find out about testing offerings that are available to them. They can also get their test results back and they can get a history of test information that they've had with us over a period of time so they can track the results.
And then when they show up to the patient service center, they're going to know exactly what the test is that they're there for. And most importantly, they're going to understand how to engage with that information and produce a better health outcome. We're very excited that we just announced an integration with Apple Health. All of our consumer records that are in MyQuest are now available in the Health app. We've also introduced new capabilities like MyCircle.
MyQuest users are able to connect with anyone that they're trying to help manage care.
So I manage my father's and my husband's health. And we go online and
we make
appointments. Technology is changing and so is Quest. So it's nice.
Everyday Excellence is a tremendous program that we've rolled out over the last couple of years to help make sure that everyone consistently across the country is providing the same level of high quality and superior service.
So how did you find this location? Was it convenient for you?
Quest Diagnostics is the most recognized brand among any diagnostics provider. So we're very proud of that. As consumers become more empowered, they are seeking more from healthcare providers. And we think in health and wellness and in lab testing, we are a provider of choice for consumers.
They're keeping up. They're staying ahead of the game.
Time is money for me. So this is it's a good transition to be able to get in here quickly and get my test done and be out quick.
They care a lot. And that's one thing that you really know as soon as you come in, these people care.
What excites me the most is our patients. We're here to service them and we do a good job for them.
So we are living in the age of the empowered healthcare consumer. And our vision at Quest Diagnostics is to become the laboratory provider of choice for consumers. We stated that back in 2016 and I'm very proud to say that we're well on our way to achieving that vision. And if you think back to what Steve mentioned earlier, this is a platform that supports all of our strategies, our strategies with our health plan customers, our health system customers in advanced diagnostics and positions us uniquely to grow share in this marketplace. Market trends are making healthcare consumers an increasingly relevant segment for us to serve.
Whether it's having the ability to order their tests directly or in just having conversations with their physician, they are increasingly focused on taking control over managing their health and their health information. In fact, today's consumers expect greater transparency and choice when it comes to their health care experience. Their expectations of working with us today are vastly different than they were 10 years ago. And in fact, their expectations from a customer experience perspective is predicated on the experiences they have with other companies like Apple, like Amazon, like Zappos. That critical factor has been informing our design for the whole experience, the whole consumer experience to appeal to that consumer.
We've been doing a lot of research to understand what the consumer is seeking. What we've learned is that they want convenience. They want a superior experience. They need it to be personalized and highly relevant to their own needs. And they want to be empowered to make decisions along this health care journey.
Recent Quest survey results indicate that the work we're doing to better understand that consumer is paying dividends. For example, Quest has the highest level of unaided consumer brand awareness among all lab providers and high levels of satisfaction among patients who've experienced our services. Specifically, 81% of these folks state that they're extremely satisfied when they use our services. Going to where consumers are has been a winning strategy for us. Our retail strategy is based on finding the most convenient, comfortable and efficient environment.
It's about a network of access points and it's about bringing that customer experience that brings the Quest brand and value proposition alive. Today, 1 third of our patient service centers are in retail settings with 10% in a partner store and our goal over the next several years is to get that percentage up to 55%. Shifting our footprint to be more and more in the retail setting like in the Safeway and Walmart stores is providing a convenient integration into the consumer's busy day. These trusted retail partners provide us the means to extend our visibility in these convenient locations and access large numbers of consumers. The feedback that we're receiving has been consistently positive.
The consumers like the easy access. They like the new modern feel of our sites and they like how smooth the patient traffic flow is. Delivering a superior experience is more than just an aspirational goal at Quest Diagnostics. We launched our Everyday Excellence initiative in 2016 to our 45,000 employees. And since that time, we've strengthened our commitment to the 5 everyday excellence guiding principles that you see here.
We've integrated into our strategies and processes so that we can be our best with every interaction. Everyday excellence is integrated into our performance assessments as well as into the frontline behavioral standards. For every interaction, whether that's with a phlebotomist or it's on a phone call with a representative from client services, we want the people that use our services to have an excellent experience. And the feedback that we're receiving is encouraging. More than a 1000000 patients actually provide feedback to us on an annual basis.
And in the most recent survey, more than 93% feel like they were treated with care and compassion in our patient service center. We're also building stronger digital experiences with our consumers to demonstrate how easy it is to interact with us. For example, you can schedule an online appointment time that's most convenient for you. And when you enter into when you enter one of our PSCs, it's a full digital experience and maybe some of you had the chance to experience that in the hallway from e check-in to viewing your appointment status on screen. And when you finish that appointment, we can send you your results directly via our MyQuest app.
It's our patient platform that's currently used by more than 6,000,000 people. And for future planning, we can personally send you a reminder about your next appointment again through the MyQuest app. We've made tremendous investments in this digital experience to differentiate ourselves, and it matters to our health plan customers, our health system customers. And as we think about that new network access or that 43,000,000 patient lives that we're going to have access to in 2019, it's this kind of experience that's going to make a difference to enable us to drive share. And as Steve mentioned earlier, there's very few labs that are going to be able to make the kind of investment that we're making.
Now when we interact with our customers or our consumers, we want to be able to serve up content that's relevant to them. We want to create personalized and localized communication to help keep them engaged in their health and with us as an organization. So for instance, if you were to walk into a patient service center, we could send you a text message following that appointment telling you how to schedule an online appointment before your next visit. If you happen to be a baby boomer, we could message to you about the importance of hepatitis C testing. And in the new MyCircle feature, we have the ability to have approved family members and other users connect through my quest to access important health information.
We're also working on creating an environment where we meet the consumer where they want to be. That includes at their health care provider. It includes at our patient service center, it includes at their workplace locations and for well over a year through home based testing, a huge convenience where we send the consumer a test kit, lab samples are self collected and we provide them with easy to understand results in their MyQuest app. We offer this through our Blueprint for Athletes offering. It's a biomarker testing service that provides insight to athletes around their own biology to help them improve their performance and their fitness.
And through our InsureONE at home colorectal cancer screening test, Everett mentioned it earlier as it relates to the employer service, we're able to do that at home. And again, those results are delivered to the consumer via their MyQuest app. Lastly, I indicated earlier that when we did our research, consumers were looking to be empowered to make health care decisions along their health care journey. Earlier this month, we launched QuestDirect, an enhanced consumer initiated testing service that empowers consumers to take control and manage their health by ordering health and wellness lab tests from the convenience of their homes. Available in 48 states, QuestDirect's 35 test offering packages includes general health, it includes men's and women health, It includes digestive health, heart health, infectious disease and sexually transmitted disease testing.
To access it, you can go to the MyQuest Enhanced app or our new website called QuestDirect. To order, consumers can conveniently go online and choose their own lab tests. Independent physicians are providing oversight in the background and if appropriate, we'll order those tests. The review of those results are also done by that same physician group. Consumers then can go online to make an appointment to visit 1 of our 2,200 patient service centers.
The results will take about a week to get back and they can access them through MyQuest, which is also easily shareable with their own consumer physician, as well as family members through the new MyCircle feature in the MyQuest app. As you can imagine, we are very excited about QuestDirect and entering a $300,000,000 market that's growing double digit. What I'd like to do is show a very short video to demonstrate how easy it is for a consumer to access QuestDirect.
We all have questions when it comes to our health. Now you control how you get the answers. Finally, with QuestDirect, you can order your lab tests on your time. 1st, select and purchase the test you want from our online menu. All our tests have clear descriptions and upfront pricing.
Next, easily create your personal MyQuest account. Then use the online scheduling tool to make an appointment at a Quest location near you. Scheduling your appointment gets you in and out faster. When they're ready, your test results You can easily share those results with your doctor for any follow-up. Now you can get the answers you trust when it's convenient for you.
So again, I don't think it could be any easier. But in summary, Quest does have the highest level of consumer brand awareness among laboratory providers. And again, as we think about this new network access, that's going to play well in terms of driving share gain for Quest Diagnostics. Consumers are taking a much more active role in managing their health and their information. And Quest Diagnostics is well positioned as we enter this $300,000,000 consumer initiated testing market, which is growing double digits.
So with that, I'd like to introduce my colleagues, Dermot Shorten and Doctor. Jay Wolgamuth.
Thank you, Kathy.
Good morning. What Jay and I would like to take you through now is a couple of our high growth emerging businesses, our data services business and that leads very tightly into our population health services. In population health, we've got a number of organic growth there. We also though did the acquisition of MedExam, which is there and also the majority JV with Walmart is there. Okay.
So let's start with really our data services. We've talked a lot about the data, the 40 billion data points. What that is, we actually have more if you go back, but that's really 10 years of a master patient indexed longitudinal data that we're leveraging. We believe lab data in general is very under leveraged. There's a couple of things there.
Firstly, most of the work that's being done in terms of risk stratification, predictive algorithms is really being done on claims or script data. Lab, we believe, is fairly standard. You've got to normalize it a little bit across labs, but in HbA1c is kind of the same thing. But it's also very high frequency, right? So instead of waiting for claims data or trying to work with EMR data, which often turns out to be unstructured lab data, we're reporting that every morning at 8 o'clock from the previous day.
And so it's a very fast pulse and we're excited about the opportunities. We have a number of solutions out in the market already. We really bucketed into a few categories. 1 is sort of look back retrospective analysis, what happened, tell me about this population, what do you know about it. The more exciting areas are really analytics that we're serving up in physician office or health system workflows.
And the real Holy Grail here is to use lab to do more predictive analytics around risk identification and stratification. We're working on that. We're teamed up with some of our health system partners and with academic institutions to look at that. So today what we do for pharmaceutical companies for instance, which today is a big piece of what we do, we're looking at classic pre market, post market launches, How big is the market? Tell me about the patient journey for a lung cancer patient.
If the out test is negative, what do they reflex it to? How often is the sample insufficient? Things like that. But we're also using it really to augment script data. As you know, there's a very big script market around sales operations planning for pharmaceutical companies and we're looking and using lab data to augment that because rather than waiting to see that a patient is on a first line therapy, we can sort of tell them well that physician had a set of patients that were tested and they're positive.
We're not going to tell them the patient name, but it's an earlier indication. We also have worked with the public sector for a long time. We have a long relationship with the CDC. We extended that contract 5 years. It's helping them build out their hep C data repository.
We work with the NIH, for instance, we're working with them on the genetics of hotspot transmission of HIV. We work with state agencies in terms of understanding where they might target diabetes prevention programs, for instance, or opioid data. So that's
a big
piece. We'll come and talk about the clinical trials piece in detail. Jim talked about lab stewardship, which is really this area of how do we help health systems and physician groups manage their lab spend better. So let's talk a little bit about the clinical trials. You've seen that out in the lobby.
We launched it about 3 months. It is a live solution. Today, we are recruiting patients in several condition states that we're recruiting patients, high cholesterol, high triglyceride, spinal muscular atrophy, Duchenne's muscular dystrophy patients, celiac disease. What is unique about Quest compared to how CROs or pharma companies go after this is because we're a provider under HIPAA, we can reach out to patients. So you may know some of these statistics, but in general, I don't think the CRO industry or pharma would argue about this.
It's a pretty horribly inefficient process, right, of 100 patients who put up their hand to say they want to participate in a trial, only 7 will actually make it into the trial and complete it. And 60% of those patients are screened out on that first screen often because people are going by self reported data or incomplete data. So what's unique about Quest and lab inclusion is just one part of it. We understand that. But the data is quantifiable and we can reach to the patients and we're not cutting the physicians out of that loop.
But the reality is that patients that are part of trials only 20% of them actually learn of their eligibility from their physician, right? So it's a very inefficient process. So we're trying to activate the patient, gather consent for more dialogue, but we can reach them initially. We also have a number of interesting assets to pharma and to CROs because as they move more and more to virtual trials, we have the retail sites, we have the patient service centers that we can do a number of things there to keep the patients in the trial, retain them better because it's an easier trip to go to a PSC to have some biometrics done for instance versus having to go back to an investigator site. So overall, this is a big focus for us.
We are live working mainly with CROs. IQVIA, the joint venture with IQVIA, we didn't put any of this capability into that JV. That was a JV around central lab testing. IQVIA is a major partner for us, but we work we're sort of agnostic. We work across CROs.
We work across farmer, direct to farmer. So it's not like you can only access this through one CRO. We're trying to serve that market broadly. Just a little bit on the data. This is just an example of a cardiovascular trial.
We were working with a CRO. They were facing penalties because they couldn't find patients. Lab turned out to be a very important inclusion criteria. We had about 180,000 patients that looked eligible. Now the problem with this was because the way they structured it and the way the business works today, they pick the investigators and then they assume they'll find patients, which they may or may not.
So here, the patients weren't actually near the investigator sites they picked, so they had to reshuffle that, but it shows here that the
a lot more effective if you know where
the patients are first, the trial is a lot more effective if you know where the patients are first before you start putting in all the site infrastructure and picking the investigators. The second example is we talked about multiple myeloma earlier. This is one where we were working directly with a pharma company that's pretty big in this space. They asked us that we work with these 300 physicians. We work with them for a long time.
We'd like to broaden that base. What can you tell us about who else we might want to work with, reach out to? When we looked at our data, we had over 1400 physicians who had more than 10 multiple myeloma patients in that last year. And so we were able to kind of contact those physicians. One of the great things we have is because we work with half of the physicians, 250 of So that's one deep dive.
So now to turn to population health and Jay, I'll talk about what we're doing there and I'll come back. But the data is an important part of that. We have a lot of data. So these are just some examples rather that where we can look nationally, for instance, with the CDC, tell them what we see around HCV, what was the penetration of it. We can look at a particular state.
The middle example is where we worked with a managed Medicaid plan that was bidding on being winning this shift from state Medicaid to managed. And we frankly knew a lot more about the geography than they did because they hadn't been in that market. And the third one, you can think of that as in our retail setting with our retail partnerships, we can look around that Walmart site or Safeway site and say what really is going on in the community around that. So that really is a big feed from a data. We also have a lot of data in our life insurance business that can be helpful as well.
But that tees up the insight into what's going on with the population. And Jay will talk about how we've actually now been working to bend that cost curve.
Thank you, Dermot. So we have, as Dermot was saying, amazing data and data analytics capabilities. And for me that the most exciting aspect of that is that the data and analytics are the front end of population health services. And to define that, any risk bearing entity, a large employer, a health plan, a government plan and other risk bearing provider groups who have responsibility for a population need to manage that population and improve the overall health, lower the overall cost of care in the long run for that population. And we believe today there are many definitions of this marketplace, but based on the analytics and downstream services, one conservative estimate would be that it's a $7,000,000,000 market growing at 20% a year.
And we have a very unique position in this space because as we've shown, we have the data and we have those analytics capabilities. But remember also, we are connected to the hospitals and physician groups and 675 make and models of EMR. So we can do that analytics work to identify populations who need interventions. And these interventions can be clinical interventions that we provide or that the partner provides. But these are interventions that are proven to improve care and lower overall health care costs.
And then the secret sauce that we also bring is the ability to engage consumers with those solutions. And I want to emphasize that all health care is consumer health care because on every and on the end of every interaction in health care as a consumer and if they don't engage with a population health solution, nothing happens and there's no benefit. And so we are currently in the market with employers and with health plans helping them close gaps in care. And remember the outcomes there are meeting the triple aim in health care, improved quality of health care, improved experience for the patient and management of overall health care costs. So I'm going to give you a series of quick examples.
And the first one is in employer sponsored health care where we have over 170,000,000 people in the United States who get their health care through their employer. And we know that that relates to about $1,000,000,000,000 plus spend, which is increasing for employers by 5% a year and is creating an unsustainable burden financially on our companies and our employees and is a huge employer health care screening and population health offering and the blueprint for wellness, which we offer to thousands of companies and millions of employees. And our best customer is Quest Diagnostics. We run our own self insured health plan of 60,000 members. And so we have been very aggressively applying the blueprint for wellness and population health to our own population over recent years.
And I can tell you that we've had great success in that we've turned the ship relative to employee engagement around this issue, but we've also turned the ship relative to the costs, which is for the first time in over a decade in 2017, we lowered the cost of health care for Quest Diagnostics and our employees last year 2017 in the face of that 5% increase per year that we see in the market. I'm going to give you one example of how this is not just screening, but population health in kidney failure. And as you may know, kidney failure is often undiagnosed until it reaches an end stage. But when it reaches that end stage, the results are kidney transplantation or hemodialysis, which are very expensive bad outcomes for individuals and for a health system. And so in this example, we offer through to employers a service whereby we identify individuals who have early stage renal failure.
We provide telemedicine and retesting services and rapid referral to a local nephrologist who is in network and is high quality. And if you think about it in the old world where we just give that result to an employee and tell them to go figure it out, I'll tell you what happens and it's nothing. Okay. But in this case within a week of having that result, the individual has a discussion with a physician, has some retesting and is referred into a nephrologist. And that we have shown by doing that we improve care and also have an ROI for the employer.
So it's a great example to give you some an understanding of how this plays out in an employer setting. So another example would be for diabetes. And this example of population health absolutely applies to self insured employers, to health plans, to risk bearing health systems and to consumers because this problem of diabetes causes a $300,000,000,000 cost burden to our system. And it is well known that foot exam, nutritional counseling and pharmacy counseling. And so we have this ability on the analytics side through Quest Quantum and Blueprint for Wellness to identify individuals at risk for diabetes or who have diabetes and then to deliver these solutions that they need and that are proven.
And we can deliver those in this amazing set of locations whereby we can reach people who currently don't engage with the health care system. So we can do this in a patient service center. We can do this in a Walmart or a retail setting patient service center. We have 10,000 mobile resources who can go into the home or the workplace and we can also send at home self collection kits to reach the person in the most convenient way. And so diabetes is a great example.
We're in the market with this and I will also say that we're starting to see a strong interest in our services being value based. In that as we work with health plans, we're structuring agreements whereby we will be paid by closing the gap in care and not just on a fee for service basis. Another good example that we're in the market with is our Medicare chronic conditions management offering. Medicare has a benefit for those beneficiaries with 2 or more chronic conditions. And it calls for monitoring of that individual in their home on a monthly basis.
And it allows for the physician who is doing that monitoring to be reimbursed on a monthly basis. And that reimbursement that's in a roughly a $40 per patient per month level totals a $15,000,000,000 benefit if all chronic condition patients in Medicare receive the service. And by leveraging our infrastructure, our call centers and our visiting nurses, we have stood up a service that allows that physician group to effectively monitor their patients, provide good care, document that good care and receive reimbursement into their practice. And an average size practice where we provide this may supplement their compensation by $80,000 a year or more while providing high quality care for their employees for their consumers and patients. And the final point that I'd make is we have all these different ways that we can reach a consumer and engage them with a population health solution.
This self collection technology which we have developed is the most convenient that you can imagine, which is literally the box arrives on my doorstep. I'm able to self collect. The technology that we've developed here is proprietary and allows for a very simple collection procedure and room temperature shipping whereby that sample is stabilized, brought into our laboratories, tested and then the results can come back both directly to the consumer and to the provider. We've made that available in 2017 for our athletes, Blueprint Fit. We're also making available now for diabetics to help close gaps in care in the community for health systems and risk bearing provider groups.
So, Dermot is going to take us home with a little more on the consumer engagement.
Thanks, Jay. So just to wrap this up, so as Jay said, we've got some really strong delivery channels. That's really where we're focusing in here is how to really deliver care to these patients. So we talked about the home. We've got an extensive number of mobile resources that is really unique for a lab company.
We had that really through our insurance, life insurance business, although the paramedical examiners we have through the wellness business that we have and now with med exam. So we're out there in the home. We have the home collection kit. We have the retail capabilities. We have world class high scale call centers.
Quest, as you can imagine, is in the business of handling large volumes of inbound and outbound calls. We're using those same centers to do the chronic care management. We have a telehealth capability. Some of that is internal resources. Other pieces of it are partnered with external providers.
So that's really an immense way that we can deliver a programmatic way to kind of reach these patients' multi channel delivery. And so just as an example, if you think of our retail settings now, what can we do there? So we talk a lot now to payers and at risk entities of providing bundles of services or what I call skinny bundles. And so what would that mean? So for a diabetic population, we'd say to a payer like Anna give us a set of diabetic members.
We're not going to manage their whole care. There's going to be a physician involved in that, their current physician or we'll refer them into care if they don't have one. But we are going to do a number of things to make sure care gets done. So the great thing about our retail settings is the volume of work and frankly is the heavyweight bias if you like around Medicare patients, Medicaid patients, right? There's a lot of these folks coming through the stores.
So we can engage with them where they are there in that retail setting. If they're chronic homebound, we can go to their home, but let's focus on retail. And so what can we do? We can absolutely make sure they get the HbA1c done twice a year or more frequently if they're diabetic. But more than that, we can do the diabetic retinal exam, which we're doing.
We can do the peripheral neuropathy tests, the foot exams. We can get their health risk assessment twice a year, get that back to the payer, get it back to the physician group. We can provide nutrition counseling. We can do medication adherence with the pharmacist to do those medication checks. If they don't have a primary care physician, we can help refer them into that.
So those are a set of services, which might be individually selected or it might be that bundle looking to get paid for providing those services, but more importantly to get paid quality bonuses for hitting certain quality metrics around that. So that's really the idea where we're scaling that. We have some early pilots going, but we're very excited overall around population health. So net net in terms of the takeaways, we do have an immense amount of structured data, including our genomic data, including pathology data, that pathology data will get more and more structured at the moment. We do a lot of natural language processing on it.
But all of that is regardless of the lab that does the testing is in our central informatics database. The clinical trials piece in particular is exciting. That is about $1,000,000,000 market today growing at about 6%. We think it's ripe for disruption. That data can feed population health terms of understanding where those populations are, what their disease burden is, what needs to happen.
And then we have a great platform, both delivery capabilities and consumer engagement, the ability to bring that data back to those 650 EMRs and back to the payers. So now we'd like Jim to come back up and talk about DRiV.
Can I
hand that on?
Okay. So hopefully, we have a little energy left here. I'm the last presenter before we get to a panel discussion. So Drive is the 2nd core strategy of the company. While it may have some cost connotation, I can assure you that as of equal importance is the left hand side of the mission, which is we continue to improve the customer experience, making our interactions with patients very transparent, especially when it comes to price, digitizing that experience, making locations convenient and always making sure that the results and service we provide is flawless.
On the cost side of the equation, formerly known as our Invigorate program, we look across our value stream from specimen collection to moving the specimen to one of our laboratories, how we test it, medical reporting, claim billing. We're always looking to save pennies in each of these operations. So it's not one or the other, it's delivering on both sides of the equation here. The Invigorate program, we started, as you know, back in 2011, the original goal of $700,000,000 We exceeded by 2014 of $750,000,000 in savings. We set a new goal of $1,300,000,000 off of that 2011 basis for 2017 and delivered over $1,400,000,000 in savings off of that 2011 baseline.
Now as Steve mentioned earlier, our annual goal is about $200,000,000 We target a 3% cost savings off of our cost structure of roughly $7,000,000,000 You do the math, it's roughly $200,000,000 a year. And I'm not going to dwell so much on the things we've done in the past. You can read those things because I want to move forward and talk about what we're doing in the future. But before I get to that, again, really focusing on that left hand side of the mission, I want to assure you that as we continue to look for efficiencies across our operation, we actually look for efficiencies and we look to improve quality and service at the same time. So just a few metrics that we track all the time in the company.
Recollections, it's a very low metric today, less than 0.2% of all patients have to come back to get redrawn. That could because we didn't draw enough, we didn't cycle or spin the blood sample down quick enough, we didn't store it at the right temperature, but we're good and always trying to get better. Honoring appointments, if you make an appointment with Quest Diagnostics, our promise is to see you within 10 minutes of your appointment time. We've gone from 95% to 95% adherence to that. Clinical turnaround time, most physicians want their results back by 8, 9 o'clock in the morning, at least for the routine overnight work that we do.
And we've improved that from 92% to 95%. I'm going to talk a little more about real time adjudication, real time estimation. We now have 40 health plans that are doing this with us. It helps the health plans, it helps the provider and it certainly helps the patient. Missing information, This is one of the reasons why we don't get paid.
We have requisitions that come in. If we look back 2 years ago, it was over 5 percent of the reqs that came in the door had missing information that wouldn't allow us to bill or bill properly. We've improved that by 23%. Medical quality revised reports, you never want to send a test result to a physician only to have to change it 3 days later. We're very close to 6 Sigma in this measurement, but we continue to reduce it.
And this could be simple reasons. A machine went out of calibration and the operator didn't know it, so the results that we sent out had to be redone because the machine wasn't properly calibrated. All the time while we're doing this, we pay close attention to the satisfaction and engagement levels of our employees. We send out an annual employment survey and it's really unheard of when 94% of your employees actually respond to the survey. So 94% of the 44,000 employees in the company give us feedback every year.
74% engagement level is above top 20% of Fortune 500 Companies. And then the other aspect of what we tried to drive with this culture, I mentioned this notion of finding pennies per requisition. We do over 180,000,000 requisitions a year. Simple ideas that come from our frontline staff that can generate a penny a savings rack is worth about $1,800,000 in savings, which happens to be about a penny a share. So you string 10 of these ideas together and you could quickly pick up 10 points of EPS when you implement the ideas that come from our front line.
Okay. So let's look forward here and talk about what we're doing to continue to find that $200,000,000 a year worth of cost savings. So the first bucket, reducing denials, and we used to call it bad debt, right? Before the accounting change, it was called bad debt. Now we have to take a hit to our revenue.
But nonetheless, we still are going to go after this aggressively. So let me sort of describe the old healthcare model, which I'm sure many of you are familiar with. You go to your doctor, the doctor orders lab tests. In some cases, the doctor will do that draw right then and there. In other cases, he'll send you to Quest Diagnostics.
What happens is we get a requisition, we get some blood or some urine in our laboratory, we run the test. And after we run the test, within 24 hours, we send a bill to a payer. It's all electronic. And generally, the payer responds pretty quick and he tells us they tell us, are we going to pay you for those tests? Is it going to be denied?
Is it going to be covered? And then what is the patient responsibility? But you can see with this model that we take all the risk, right? We don't find out if we're going to get paid for the work that we do until after we've done the work. And we think that's a very outdated, outmoded way of running our business.
So what's the new model? The new model is you go to your doctor, your doctor orders lab tests, you come to Quest Diagnostics, we have an electronic requisition in our hands. Hopefully, it's electronic. And we're going to take that requisition and rather than adjudicate it 24 hours after we've done the test, we're going to adjudicate it right then and there in our PSC. We're going to send it up to Aetna.
We're going to send it up to UHC or whoever the payer is, and we're going to send it up as if it was a real requisition to be adjudicated. And they're going to come back and tell us, is the test covered? Well, first of all, they're going to tell us, is the patient really part of the plan? Are they eligible? Have they been paying their deductibles?
Is the test covered? And if it's covered or not covered, what does the patient owe us? And then we're going to turn to the patient and say, how would you like to pay? So it's no it's a very similar model to when you check into a hotel. If your company has already prepaid or your company has given a credit card, they're still going to ask you for that credit card just in case or just to cover the incidentals, the water or candy or whatever else you might eat in your room.
So today, our net denials is about 6%. So 6% of all the 3rd party work, the 3rd party payer week we do is denied. And then patients don't pay us roughly $300,000,000 a year. And that $300,000,000 on $7,500,000,000 that's four points of growth that we're losing in revenue each year because of patient concessions. So on the left hand side, first, why would payers deny the work that we do?
Why do they deny And as I mentioned, our net denials rate about 6%, but we start out at close to 11% of the 3rd party work we do gets denied. What are they denied? Simple things, administrative requirements. Carrie talked about pre authorization. In some cases, they want the physician to do it.
In some cases, they're okay with Quest doing it, but we've sent them work that wasn't pre authorized. The second and the biggest or second biggest bucket is test coverage and benefits. So the doctor ordered a test that was not covered by your plan. And so it gets denied. In some cases, we're able to bill the patient for the price of that test.
In other cases, the payer has kind of said to us, we really don't like that test and we don't want you running it on our patients. So therefore, you can't even bill the patients. So we eat that cost. And then the final piece is, eligibility, data quality. We didn't get the right insurance information.
We didn't get something we didn't get the right diagnostic code, but it was bad data. And then we go back and have to try to chase the physician for that information. So all of that, we work it hard, it costs a lot of money to go do this, but we lose out on roughly $120,000,000 of revenue through this denied work. Now in some cases, we recognize we may not it could be cost avoidance as well, right? Because increasingly we're turning to the patient and say, here's the bill and you can make the decision if you want that test run.
So either we're going to capture this revenue opportunity, this $120,000,000 or we're going to avoid the cost. And the total variable cost of doing this work, call it roughly half. So you've got about $60,000,000 of potential cost savings. So we're either going to get paid for the work we do or we're going to stop doing the work that we don't get paid for, okay? Now on the right hand side is why don't patients pay their bills?
The first, about 40% of the time they don't pay us because they don't think they owe us money. And this is just they don't understand their plan benefit. So we may send you a $20, 15, $10 or $10, $15, $20 bill. It could be a co pay, co insurance, it could be what you're responsible for. And members just don't understand that they're responsible for it.
And so what do they do? They throw it away and they think that Quest will go away. They think that the payer made a mistake. So if you have $10 or $15 bills from us, we actually do want you to pay us, because it's a big chunk of why we don't get paid. The second is the test is not covered.
So we ran a test, the payer said it wasn't covered, we billed the patient and then the patient says, you know what, it's not my fault. You, doctor, ordered a test that wasn't covered, so you should have known ahead of time. And Quest, then they call us and say, Quest, if the doctor ordered a test that wasn't covered, well, surely you should have known that it wasn't going to be covered, so I'm not going to pay for it. And so we chase them down, we dispute it. We try to get something, but in the end, many times we don't get paid.
There is the 3rd bucket of true financial hardship. And we have empathy, we have a heart for these patients. We have financial programs in the company. If we can identify the patients ahead of time, some of this we write off and some of it is paid over time. Then the rest of it is just other reasons.
We can't find the patient. They gave us the wrong address. That's why we start to ask for driver's licenses now so we can get the most accurate information, most timely information and then a bunch of other reasons. All told, it's $300,000,000 of potential revenue that we don't get into the company today. Okay.
So how do we fix it and what do we do it? So the first and most important piece starts with getting rid of paper requisitions. I've talked about this in the past. And in the past, I've talked about it as a cost savings, okay? And it is a cost savings because if I get a paper requisition, we have to have somebody in Quest Diagnostics enter all that information into a system.
Rough order math, it costs us about $1 a rack to enter that information. So you can do the math, 38 percent still coming on paper, 38 percent of roughly $150,000,000 just on the clinical side of our business. And it's easily a $50,000,000 cost savings to the company. As important though, it allows us to get good information. So I mentioned today, 4% of the requisitions that come in our door have missing information that don't allow us to bill.
When we look at that missing information rate on paper requisitions, it's over 8%. And it's simply because doctors don't take the time to fill in the information requirements and there's nothing I can do to stop that order from coming in. At least with an electronic order, if you haven't given me the right information, if you haven't put it in, I'm going to block you from sending me that order. I won't allow you to transmit until at least you fill out the field. Now once you have filled out the field, then I can go check the quality of that information.
I can send it up to a payer. I can see if in fact you are part of the plan, if you are eligible for the testing that's being ordered. So very, very important that we continue to drive this rate. We're EMR vendors continue to help us as they penetrate these offices. Now I want to give you a sense that we actually have made improvement here.
So on the left hand side, today, when a doctor orders lab tests, about 50% of the time, the doctor still does the draw or collects the urine in their office. Okay. About 50% of the time, the doctors said, we're no longer going to provide that service, go to Quest Diagnostics, they'll do the draw, they'll collect the urine. So on the 50% that we collect, you can see it's only 30% of that patient concession, that bad debt, okay? So it's only $90,000,000 So we've made if I go back and look 5 years ago, I can assure you this was closer to 50%.
But with these tools that we've implemented in our patient service centers, this real time adjudication, I'm now able to confidently turn to that patient and say, yes, you're a member of that plan. Yes, the doctors' tests that have been ordered are either covered or not covered. And at the end of it, the payer actually sends me information that says the patient will owe this much money. And with that information, our phlebotomist has the confidence to now turn to the patient and say, you're going to owe $54.23 not would you like to pay, how would you like to pay? And it's changing the paradigm of healthcare.
Most people think they can walk into a doctor's office, get the service and we'll pay you later. But we cannot continue to take the kind of financial risks that we've taken in the company and we're committed to solving this. Now, how do we hit the other 50% where the client, we never see the patient because the physician is doing the draw, we're giving them the same tools. So we have this quantum suite of tools, we give this real time estimation, We're rolling that back on a trial basis right now with a subset of physicians. And you might say, well, why are physicians motivated to do this?
Why would they want to do it? Well, because when the patient gets a surprise bill, generally the first person they call is the physician and complain to the physician's office, why did you order a test that wasn't covered? And then they can complain to us obviously as well, because we're the ones that are sending them the bill. So the physicians are motivated to do this. We've got to work it into their workflow of the office.
But in the end, it provides the patient a real benefit. It provides the physician a benefit and it provides the payer the benefit as well. Okay, makes sense? Okay. So, look, we think there's significant opportunity here.
We're going to continue to reduce those denials through this real time adjudication. And we're going to continue to work on the patient concessions. We'll tell them what the price is and then ask for that credit card upfront. So we take 0 billing risk. Okay.
We've talked a lot about digitizing the company from a patient standpoint, physician standpoint and some of our own internal processes. So why do you digitize? I think you've all read the theory of the case. One is, it's what consumers want. It's what physicians want.
But when you digitize a process, you also have the added benefit of taking cost out of our end. Some simple examples. When physicians order supplies and they give it to us on a fax paper, I have to have somebody else in the company that's going to enter that data. When they give it to us electronically, it's easier, it's better quality and I no longer need someone in Quest Diagnostics to manually enter that data. So that's the theory of the case.
Now we've talked a lot today about the digital clipboard and we've moved our process to checking in from an iPad. It sounds rather simplistic. It wasn't exactly brain surgery. But I want to give you a feel for how this has really transformed some other processes in the company. So it's now deployed at 2,200 PSCs.
So first, I got to tell you that the patients absolutely do love this, okay? Because now you walk into one of our patient services, you check-in, and we're going to tell you the estimated time to when you're going to be seen. The other thing it does for our phlebotomists is in the old world with a clipboard, they would walk out and they would call you as the patient. And if you came in at 9:15 and your colleague to the right of you came in at 9:20, you just think you ought to go first. But if he had an appointment at 9:20 and he came in after you, he's going to call in 1st.
And then you're going to stand up and say, well, wait, what about me? I came in before he did. And so our phlebotomists would have to sit there and negotiate and navigate these conflicts in the waiting room. But now we just tell you where you are in the queue. And it might be hard to see in there, but you can see we call out the people that had an appointment.
So if you came in after the person who didn't have an appointment and we call you first, then logically the person understands, yes, they have an appointment. So it provides you knowledge. Now the other thing is, if there is a 20 minute wait time and you're in a Walmart or you're in a Safeway, you can go out and shop. In fact, our retail vendors actually don't mind long wait times because it helps them and you get out there and shop and buy some of their goods. Okay.
So good for the patient, good for our phlebotomist. Now that we have digitized this process, the other thing we can do is we can monitor on a real time basis. Our supervisors who look after roughly 30 PSCs apiece, they can monitor the wait times real time. So on the bottom, you see the green bars are the volume. You see the appointment wait time very, very low under 10 minutes.
But you can see in this particular case, we had a lot of patients that came in and the walk in wait time continued to build. Okay. And our guarantee is to try to keep that under 20 minutes. In this case, it didn't work. But picture now a supervisor in Manhattan who's responsible for 30 PSCs, we can make real time staffing movements.
We have floaters that just go from PSC to PSC depending on where the demand is. And now a supervisor sitting at their desktop can actually direct a phlebotomist to a site where the wait times are long. Now the other thing we do is we learn. We use real time machine learning. We know the demand patterns that are coming into our patient service center, so we can make real time staffing decisions and we can take some of the staffing decisions out of the hands of the supervisors and tell them exactly what they're going to need at that facility next Tuesday at 9 in the morning.
So really good for our supervisors. Now where are we going beyond this? You can get online today and if you need to go get blood work, you can click on one of those green arrows, which shows our PSC and you can click and it'll show you exactly what the wait time is in that patient service center. And so if it's a bit longer than you want to wait, you can click on another one. And if they have a shorter wait time, you can go and choose to have your service done there.
So all of this is online. I encourage you to take a look and you can next time you come to Quest Diagnostics, please use it. Now where do we go beyond this simple e check-in? Appointments and pre registration. So once we get an electronic requisition from your doctor, Damian, I get it, I'm going to send you a text.
I'm going to say welcome to Quest Diagnostics. I'm going to put an appointment scheduling link in there. And I'm hoping you're going to make an appointment because if you make an appointment, you're going to get better service. Once you make that appointment, I'm then going to give you I'm going to send you some information that I'd like you to fill out ahead of time, provide your driver's license, provide your insurance card, your date of birth, all the information that you actually provide to us when you come into our patient service center. And in that typical 15 minute experience when you come in, about 5 to 7 minutes of that is wasted gathering information.
So if we can get that information ahead of time, one is going to help the patient. You don't have to provide it once you come to our patient service center. And second, it's taking work off of our phlebotomist plate. So we can shorten that window from 15 minutes down to 10 minutes. And that's the goal with what we're doing here.
Once you do that, we're going to send you a confirmation, use that to check-in. If it's 2 weeks before your appointment, we're going to text you to remind you. If it's a week out, if it's a day out, we're going to send you reminders so that if in fact you can't come tomorrow morning at 9 o'clock because something came up, you can reschedule the appointment to when it's convenient for you. So all kinds of nice consumer things that we're doing to make the experience better. So this simple little project of replacing a clipboard with an iPad, here's what it's led to.
Certainly, patient convenience, patient satisfaction, they know exactly how long they need to wait. If they don't want to wait, they can go do something else. Operational efficiency, it's allowing us to take a 15 minute time slot down to 10 minutes. We can process more patients with the same amount of labor. There's a $60,000,000 savings there.
And our phlebotomists absolutely love these tools. They didn't go into this business to enter data into computers. They didn't go into business to navigate conflicts out in a patient service center. They came into this business because they want to care for patients. So we have similar types of digital tools for physicians.
How do physicians interact with us? In the old world, they'd send us requests for supplies on paper. We'd have to enter it, send them the supplies. Results calls, they still do call us for results. You really never ever, ever have to do that, but they still do.
And we're trying to put these all of our results are online. Many of them don't use it. So we continue to try and drive that down. And what we just introduced over the last year, if you collect your own blood and urine, you collect your own specimens, you used to have to call Quest Diagnostics if you weren't a routine customer for us to come and pick that specimen up. You don't have to do that anymore.
It's an Uber like service. You get online, request a pickup, we send you back a confirmation and tell you exactly when and where the driver will show up. It's great for our drivers too, because we can take that online request, funnel it out to the driver that's actually nearest where that physician office is. So what does all this save us from a digitization standpoint? On the patient pre registration, I mentioned a $60,000,000 number.
$60,000,000 worth of costs, we shorten that window from 15 minutes to 10 minutes. E requisition, so driving more paper requisitions to electronic requisitions, dollars 25,000,000 If we take it all the way, there's $50,000,000 of opportunity over the next 3 years, there's easily $25,000,000 to get. Physician office processes, don't call us for supplies, don't order us, don't call us to pick up a specimen, use the digital tools. It'll take out about $5,000,000 worth of people that are just answering phones. Yes, I'll come and pick up your specimen.
And then our call center optimization, we still get about 25,000 calls a day inbound, people looking for results, looking for other where your PSC is and we make about 15,000 calls out a day. That is an old archaic process. We call a physician to tell you that you have a patient with a very, very high abnormal value. It's an outdated practice. We still do it.
We're going to digitize that. There's ways to confirm that the physician has actually got the data, received the data and will take action when we send that stat alert. So all told, we see about another $120,000,000 of costs to realize here, as we continue to digitize these processes. And then the final benefit, obviously, a patient employee satisfaction is immeasurable. Okay, let me move to the next bucket, standardization and automation.
So very near term opportunity that we work on today. One type of testing we do called immunoassays. These could be tests that detect AIDS, HIV, tests that detect hepatitis C, vitamin D testing, hormones, testosterone, PSA. These are some common tests that are referred to as immunoassays. There's about 73 distinct immunoassays in the company that we offer.
And we do that work on 6 different on 7 different platforms that we get from 6 different suppliers. You know these suppliers, it's Roche, it's Siemens, it's Beckman Coulter, it's Danaher, it's DiaSorin, some of the big players in this industry that supply us tests. Now why did we go with 6 suppliers for all these tests? Well, it's how the industry evolved. It's a relative new type of testing, using these immunoassays to do this testing.
And for example, the first vitamin D testing was done by DiaSorin and we had to buy their platform in order to do it. But as this industry has matured, Roche can now do everybody else's immunoassays. DiaSorin can do a bunch of other folks' immunoassays. Beckman Coulter can do everybody else's immunoassays. So we don't need these 7 platforms anymore.
We don't need 500 different units in the 16 regional laboratories that we have. So we run a competition. We're going to get it down to 1 supplier. We're going to save a lot of money as we work the competitive nature of the deal that we put in front of these suppliers. And easily over 5 years, it'll save us about $50,000,000 Now these are the types of things that generate on average about $40,000,000 to $50,000,000 a year in savings.
We purchase about $2,500,000 worth of materials a year and we target 2% to 2.5% material cost reduction, namely through price reductions, but also through material utilization reduction as well. So this goes a long way in terms of meeting that $200,000,000 a year goal. I know a question was asked earlier about the Quest Billing system and how many different billing systems you have left in the company. Let me start with our laboratory systems, because the 2 are intricately linked. So we made a commitment to standardize 100 percent of our regional laboratories.
We're almost there. We started New York, New Jersey. It's our Teterboro facility at Pittsburgh. We started in 2018, will be completed in 2019. Those are the last two sites that have a non standard billing system.
So after we complete these sites, 100% will be on 1Quest laboratory system, 100% will be on Quest billing system. 4 of our major esoteric sites have also converted to our Quest billing system. Other than that, the only ones that don't are some of the small acquisitions that we recently did. Now, why do we spend money in this area? Why is the standardization important?
For several reasons. 1, when you get down to 1 system, billing system, 1 lap system, it helps us reduce the IT resources, IT investment to maintain disparate systems. 2, it gives us the ability to move work around the network to take advantage of capacity in Miami if our capacity in Tampa is getting filled up. I can quickly shift work over to Miami where I may have capacity. But let me give you a real time example of how having 3 labs in a geographic region really, really helped us.
So these were some pictures snapped by our laboratory leader in West Hills, which is our big mega laboratory in the Los Angeles area. And those red zones that well, one, you can see the fire. This was taken from the parking lot of the laboratory. And I think this was a Friday night in early November. And you can see how close we were to the fires and the regions that were being evacuated.
A portion of West Hills had to be evacuated that night and over that weekend. So at about 9 o'clock that night, the lab leader called me and said, I think we got to shut this lab down, because our employees are getting really nervous. The fire is about a mile away. It is getting really, really smoky. So at 9 o'clock on a Friday night, we're sitting in a laboratory with about 40,000 specimens either in that laboratory or being delivered to that laboratory at that point in time.
And so what do you do? You got 40,000 specimens that you could potentially not be able to didn't lose we lost almost none of them. We have a lab up in Sacramento. We have a lab in Las Vegas. They're on the same Quest laboratory system.
We packaged up 40,000 specimens. We drove many of those over to Las Vegas. We put them on an airplane out of Burbank up to Sacramento. We were able to process those specimens, maybe not by 9 o'clock that next morning because each of those labs had their own demand that they had to service. But we were able to get the results out by the next day for sure.
Yes, we didn't make the 8 to 9 turnaround time, but we didn't lose a specimen in the process. So this is why having our laboratories on one common platform is so, so important to us. Okay. The last piece, as we optimize processes, procedures and how we do work across the company. Continuous improvement, as I mentioned up front, is a way of life in Quest Diagnostics.
Whether you call it continuous improvement or Kaizen, we continue to run events across our laboratories to ensure that how we do testing, how we do logistics, how we do draws is consistent everywhere you go with Quest Diagnostics. This is just an example in our prescription drug monitoring area. As this business grew up and it grew up very rapidly, as you know, we didn't have complete standardization across our laboratories. So we had a team that came into our Valencia operations out on the West Coast, standard looked at the workflow being done, tore it up, value stream mapped it, took work out. And in the end, where we were once only meeting 50 percent of the turnaround time requirements, when the work was completed and the ideas generated, we're now 95 percent there in terms of meeting the turnaround time requirements.
So improved quality, improved cost and improved our customer delivery to our physicians. Now some of you have been up to our Marlboro laboratory up in the Boston area. You heard the story the last if you were here last time, we collapsed 4 laboratories in the Connecticut, Massachusetts area into 1 big mega laboratory. Why do we do that? Because we can get more efficient.
When we built out this new laboratory, it's one big massive open environment. We can automate many of the labor manual processes in that laboratory and it saved us a significant amount of money and really helped us reduce our cost of testing in excess of 10%. We put out a press release earlier this week. We're going to do the same thing here in the East region that we sit. We have a old outdated midsized laboratory in Baltimore, Maryland.
We have an older midsized laboratory in Philadelphia and we have a rather large facility in Teterboro. However, it's dated, it's cut off, it's very hard to automate many of the processes just given the structure of the building itself. So we announced plans to build an all new laboratory on the old Hoffman LaRoche campus, not too far from here in Clifton, New Jersey, and that work is underway. In the end, we're going to collapse those 3 laboratories into one laboratory. It'll process in excess of 80,000, 90,000 specimens a night.
We'll improve the productivity about 15%, 30% greater capacity and we'll be able to double the throughput that when we look at the throughput of the 3 laboratories, collapse it to 1 and we'll double the throughput in this individual lab. So we'll pick up a lot of savings as we execute this project. So what are the takeaways? First, I hope you see the power of this digital transformation. It is really good for patients, really good for our providers and it helps drive efficiency within Quest Diagnostics.
2nd is simplifying how customers engage with us. Also, it just simplifies how we do the work. And hopefully, I've showed you that this target of $200,000,000 of savings a year between the patient concessions, between the denials, between the digitization opportunities, between the standardization and optimization work that we do across our value chain, we believe that there's easily $200,000,000 worth of savings a year over the next 3 to 4 years. So with that, we're done with the formal presentations and I'll invite my colleagues up for a little Q and
A.
Great. Thanks. So two questions and one I'm just getting some emails from some clients. I think they want I'm asking some people ask explaining one more time why you don't think the issues that are impacting in terms of collections and accounting that you saw in Q4 are going to bleed over into 2019? I think just people want some more clarity on that.
Okay. Well, first off, it's never been an issue before. The second thing is we are going to get to the root cause once we figure out whether there is in fact an issue and to what extent it is at this point, there looks like there could be and that's why we're communicating it. So you have our commitment to get to the root cause. And therefore, as we enter into 2019, we will put our plans together in place, we'll put together our guidance and everything else that we do that will ensure that this won't happen again.
Great. So the other question I have is on advanced diagnostic testing you can and you're doing offering it, you get some very nice price premiums for doing that. But obviously if you see things like BRCA where you've got competition, pricing can come down pretty dramatically. I guess, how do you see sort of the reimbursement rate for testing and advanced testing going forward? Because obviously at some point everybody in their dog is going to be offering a liquid biopsy test.
And so that's going to become something where you're probably going to see pricing come down a lot in. So I'm just sort of thinking how you're looking at the mix, the volume and the price on this because you're obviously these are expensive tests and the more they get utilized, the more pressure is going to put on the
system. Yes, we absolutely see that same declining price in genetics testing as well. You've seen it whether it was a stack code reimbursement change in 2013 or now the pressures that you described, that's exactly what we've planned for. So a part of our strategy and the operational overall. And we continue to not only have the operational rigor, but the scale, which is really what underpins the ability to do genetic testing at the right profitable price, we're in great position there.
So we are planning for those price declines.
Dan? So a couple of questions on trying to quantify the increased plan access. So first off, is it right that you're looking for another $1,000,000,000 revenue from increased plan access? I think that was 25% of the $4,000,000,000 over the next 3 years. And if so, how do I square that with your guidance?
And then secondly, is it right, Everett, I think in your presentation, you quantified 25,000 near term patient opportunities or doctor opportunities or whatever it was, dollars 700,000,000 about 40% of that was low hanging fruit. So the Quest loyalists, so is it right to think about $300,000,000 in new revenue from the enhanced plant access in 2019? Thank you.
So, first, your math is correct, dollars 4,000,000,000 market. We said our commercial share today is roughly 25%. So there's no reason why we don't expect to capture 25% of the future access. So I think your math is good there. The issue is just timing, how quickly we think we can get that 25% into our cap.
Now realize, it's not just us going out, by the way, against the other independent labs. There's a big chunk of that $4,000,000,000 that sits in hospitals. And that means we have to work with UnitedHealthcare to design programs to incent physicians and patients to not use the hospital labs and Steve showed you the pricing on those hospital labs, but use one of the lower cost lab networks like Quest Diagnostics. Your second question about the near term opportunity. We showed you 300,000 accounts.
We serve 170,000 of those. Of the 170,000 that we currently serve, we looked at 25,000 high volume accounts. And we know that those 25,000 high volume accounts account for $700,000,000 worth of UHC business. So we know the accounts, we know where they are. We said a little less than half of them are very, very loyal to us.
And the remaining are mixed users is what we call them. So will the loyalists and you quantified that correctly, will they instantly drive that business to us? We think a lot of them will. Will 100% of them? No.
Some of these loyalists actually, you know what, 80% comes to us, 20% goes to another competitor, and maybe they want 2 lab providers. But we think a good portion of it will come to us.
Yes. The only thing I'll add is, it's not a hope type thing. We have a very rigorous process in the field to ensure that we're not just hoping for January 1, 2019. We've been working on it since May 24 of using a very repeatable process to call on the physician. Once that office lets us know that, hey, listen, we're coming to Quest Diagnostics, we have a detailed checklist to ensure that everything is done.
So when they are ready to put the work, everything happens seamlessly. So it's happening very quickly.
So Dan, the way you should think about it is that's the opportunity. And the reason we think it's important for you to share that is as you think about when we come out with guidance for 2019 and after us presenting this 3% to 5% and some of that, obviously, 100 to 300 basis points coming from organic, how does the health plan access play into it? And is it plausible that they can get this kind of growth with the price of headwinds they're facing in the next couple of years? So it's not when we say there's a $700,000,000 chunk and the $300,000,000 chunk and the $750,000,000 chunk, it's not in any way committing exactly when we're going to get that, exactly what proportion we're going to get. I do think it's a fair statement, as you said and Jim verified that if there's $4,000,000,000 of opportunity, we'd be extremely disappointed if over time we don't get our fair share of that.
But we haven't exactly time stamped it. But you can hopefully walk away from this understanding there's a ton of opportunity for us to grow organically with this expansion of access.
I mean, Mark, just is the issue in squaring this with guidance, is it really just timing or is there some weaker underlying level of volume that you're assuming in this midterm guidance?
We never give guidance before the earnings call. We're not changing that at this point. So it's not a change of what we've done. Obviously, the more information we have at the time that we give guidance, the more confidence you can have it. So why not give ourselves a couple of weeks into January, see how things are going.
So
when we come out, we hopefully have some things we can share.
Jack? Thanks. Jim, you laid out the tale of the hospital outreach opportunities that you see in the market. I was curious where you're within those discussions, where you're seeing the most interest in terms of sale? Are the bigger outreach labs, are they actually thinking about scaling up in terms of in the face of some of the pressure?
Or do you think there's interest there in sales as well?
Yes. I'll give you my initial thoughts and then my colleague, Dermot here certainly works with the systems that are to the left on that chart, the larger mega deals. There are some big health system opportunities out there that we're in discussions with. And a few of these health systems are struggling financially, so selling their outreach book of business generates some near term benefit for them, and that may be a motivator. On the right hand side, the 2,000,2500 hospitals that are under $7,000,000 it's just so insignificant to what they do.
And with the pressures that they're seeing from a price standpoint, not only PAMA, but commercial payers, their thought process is it's just the right time to do it, and take advantage of the opportunity while it presents. So, Dermot, I don't know if you have any
Yes. No, I mean, I think that's right. I think we are seeing a lot more interest in the bigger systems and we've certainly got half a dozen large potential deals still early, but I think they're I think the more sophisticated health systems understand PAMA better, they understand their cost structure better. They really have been rethinking what their core capabilities are. So they're more primed to say, we don't really need to control lab, we just need the information and we need it at lower cost.
So I think we're seeing good movement. I mean, there's always a lot of consultants involved. That in general can be a good thing, but it can extend it. There's always a lot of dialogue around joint ventures, which I think can complicate it. But we're pretty bullish on what we're seeing.
And I think the smaller end is going to be more a case of getting them to understand what it really means for them for a health system. The Medicare volume, it typically is going to be like 25% of their volume. In a lot of cases, it can be 40%. So some of these health systems are very, very overweight in terms of their Medicare exposure.
Yes. So two points on that. One is their exposure to Medicare is more than us. Ours is about 12%, so much a larger percentage of their book. 2nd, as you might hear, some large healthcare systems that can have enough economies of scale to run their own labs, but those are a handful or 2, okay.
So very few can actually compete with us on the basis of cost and quality.
Ricky?
Thank you. So, first topic is on Invigorate and the cost savings. So when you think about the cost savings that you identified and that are included in your long term guides through 2022. What percent of it is within your control versus depends on changes to patient and provider behavior?
Just trying to run through some math in my head, I think 60% to 70% of it is in our control. And even changing physician practice is in our control. We go into these physicians that are giving us paper recs and we to convert them back. Many of them already have EMRs. They've just gotten lazy and defaulted back to paper.
The administrator and the office change, and so they don't know how to use the system. So we go back and retrain them and the electronic recs start to flow. The behavior change with patients giving us a credit card is one that is a delicate balance and we continue to work that with our payers. Many of the payers are coming around and now, allowing us to demand a credit card as opposed to making it optional, because we'll have that conversation with the payer. If we can't collect a credit card, maybe you would like to backstop that bad debt or patient concession, and they really don't like that alternative.
So, again, I use the hotel industry as a comparison. You check into a hotel, you've already prepaid it, but they still want your credit card. And most people don't think twice about flipping it out to cover the incidentals. And so that's the attitude we're trying to drive through patients. It's an expectation that you do it.
And by the way, dentists, ER emergency room, outpatient types of settings, they're all demanding credit cards as well. So the whole industry is coming around to
this. So Ricky, to your point, there's a lot of this that we do control. There's some of it that we have to influence. But I know Jim would say this. He has that goal of 3% or $200,000,000 a year, and him and his team working with all of us have delivered against that goal, even though you don't directly control it.
So clearly in our sights.
And that's what's important is that it's not as if the we have to influence work is in front of us, some of that we have to
I do think that that's really the area where all of us are focused. And I understand that at this point, you don't necessarily have a handle of why the receivables have spiked. But I think what could help us and help us just do the analysis ourselves is, if you give us some data points around the aging of the receivables. So the receivables that you're writing off, were there at 180 days, were there at 2 70 days and what are the buckets? So what percent of the receivables that you have in your book today are above actually don't
have
the ability to age our net receivables. Actually don't have the ability to age our net receivables. So it's really gross receivables. And so what that means is, when we bill, we bill at list price. This is all around the 3rd party.
And so for our 3rd party payers, I mean, we're generally paid within 30 days. I said there's some denials that we appeal and go back and forth, but we have not seen an aging in our receivables to the 3rd party payers. Then you get the patient piece. We have a very rigorous process that's applied by Optum that as they send out the patient bill, the clock starts and a combination of as those patient receivables age, we start reserving against them with a very straightforward formula. Then after a certain period of time, we write them off completely.
And after a certain period of time, we actually sell them to a collection agency. We've not deviated from that once at all. So this is not an aging of receivable question. Ricky, it goes back to what I said, which is our methodology that we have to make a bunch of assumptions. And to some extent, those assumptions could have been wrong.
So when we made an assumption back in the end of July, and we assume that our denial rate was going to be X, and it was X plus something slightly going forward, we don't know that until the cash starts coming in and we see that there's an issue. So it's not necessarily an aging issue. To some extent, as we get into this, it could be that our revenue actually shouldn't have been as high. And so we shouldn't have set up these receivables. Now the good news is it's all within the current fiscal year.
It's not an issue that carries over from last year, as I shared before. And so as we get to the root of it, we're going to figure out what exactly drove it. And as I said, going forward, when we notice this, then we start getting more conservative in our revenue accruals to make sure that we're not continuing to go in that direction. So certainly, as we got into the Q4, the rate at which we're accruing that revenue, we're being more conservative. We're assuming there's more denials.
There's it's what we call the disallowance rate, the difference between what we bill at and what we get paid from the 3rd parties. We've actually built in a higher disallowance rate just to make sure that we get on top of this.
So just clarify that. So when we think about the guidance that you've provided, the top line guidance, does that already factor in that higher deniler rate? Were you for so right, because the organic growth rate somewhat slowed down. Is that why it slowed down? So is that already kind of like built into guide?
Yes. I think we're getting a little granular beyond our capability, Ricky, quite frankly. So this could be a very temporal issue that we're going to address. So until we know what the issue is, so higher level denials, as I said, quite often, it's inappropriate. We go back to the payer and we say, hey, you shouldn't be denying this.
So Ricky, there's enough range within 3% to 5% CAGR over 4 years that whatever scenario this plays out, I'm comfortable we're not being overly aggressive. In fact, if anything, as you've seen the growth opportunities from Access, I think you see there's a lot of opportunity there. So as we have to make a call on a multiyear guidance, something like this issue was very painful because it's acute and within 1 quarter in 1 fiscal year right now and it feels horrible. And certainly, we're going to make sure that this doesn't happen again. The reality is in a 4 year CAGR, I mean, this is largely noise.
So to go back to something Mark said earlier, just to reinforce it, one is what we provided to you is a floor, yes, number 1. Number 2, it was asked earlier this morning, is this the new basis to plan on for 2019? The answer is yes, okay? So the growth we're assuming for 2019 2020 and as part of our outlook is based upon the revenue that we're estimating now for 2018. So it's not as if it's one time deal or one time effect.
It is in the base of 2018.
Thanks. Wanted to go back to the M and A outlook and we know there's a huge hospital outreach opportunity, but aside from that, which testing categories or areas within like advanced diagnostics are the most attractive to you? Where do you see the puck going, Steve? And what capabilities would you like to add over the next 3 to 5 years? Is cancer diagnostics really a big focus for the company?
Thanks.
Yes. So first of all, you remember, we're taking this portfolio approach where you hear a lot of opportunities to grow that general diagnostics business. And with the access changes, with the opportunities with hospital outreach, that is the core business about $6,000,000,000 of that $8,000,000,000 We're moving more resources and we believe there is an opportunity to continue to accelerate growth in advanced diagnostics and also what we talk about is data diagnostic services or diagnostic data services. In both of those categories, we will be continuing to make investments in acquisitions. So you saw the acquisition chart.
And what I said is about 60% of the acquisitions actually is capability building. And so you should plan on seeing more acquisitions related to Kary's discussion around advanced diagnostics as well as what we talked about with diagnostic data services. Last year, we acquired a company called MedXM, which is positioning us nicely in a piece of what we talked about this morning. We also acquired a number of capabilities that Carrie spoke to in advanced diagnostics. You will continue to see those.
Now You will continue to see those. Now specifically, if you look at advanced diagnostics, because that was your specific question, clearly the biggest category is the ones that have the most opportunities. If you look at what we have around oncology care, where we have gaps, you'll see gap filling opportunities for us. And also women's health, we've added some pieces. There's more to go.
But I would say those 2, anything you would add to that, Carrie?
Absolutely focused on the capabilities building because services unlock the growth, women's health, cancer and some highlights into neurology, I would add as well, cardiometabolic. You're going to get my everything, every clinical franchise we cover, but there's such big opportunity in genetics and the capabilities building we can do can absolutely unlock the accelerated growth potential.
Yes. I just want to make a couple of more comments that maybe will give you more confidence, not just you Ricky, but others. So first off, when we build our plan and we communicate our guidance for 2019, we'll absolutely start with where we're exiting 2018, okay? So that will be the basis for what we put together. And the other point was what we said earlier was, if you have foresight to this, you build a cost structure that's appropriate for that level of revenue, that level of gross margin.
The other thing is around denials. We have a very strategic conversation going on with 1 of the major payers right now with the objective of completely eliminating denials. They want to do it as much as we do, okay? And whether we get there or not, we'll see. But I can tell you, denials are not just an issue for us.
They are a major issue for the payers. And because remember, most of them are not fully insured. So you may think, well, denial is good for the payer because, but no, I mean, they're ministering the plan for an employer and it's a major source of dissatisfaction for everybody in the ecosystem. So we have one of the major payers so interested in this that right now because their administrative cost and their pain and they want to they actually see this potentially as a competitive advantage for them. They want to talk about what can we do together to completely eliminate these denials.
So, it should not be seen as, hey, yes, you've had this headwind you've talked about this year. Vitamin D obviously is a separate issue around the view that it should not be used for screening. I get that. But it's not just a quest issue on denials, it's a payer issue as well. And they it's on their radar and they're trying to do something about it as well.
Time for a couple more questions.
Mark? Great. Well, thanks guys for the presentation. The 1% to 3% organic revenue growth guide certainly seems to include the benefits of like HCA, Ancestry, Walmart and Safeway. I guess you've had the relationship with HCA Colorado for over a year or so, 2 years perhaps.
What's barring you from potentially expanding that? I guess what does HCA need to see before they trust you to go?
Yes. So first of all, as you know, a big for profit, they're professionally managed organization. And as many professional organizations do, they start with a pilot to see if it works. So the Denver Continental division is where they started. We believe and we believe they would say based upon the conversations that they feel good about that pilot.
Been to Nashville over the course of the last year, my hope is that with that success of that pilot, we could extend it through more of their divisions at HCA. And I'm also hopeful given that proof point that the other for profits that we could tell you about in the future.
Any sense on timing of when you might know that that could expand or not?
Yes, I won't foresee what they might do. They just had a change too with their CEO and their management change. But I'm hopeful that when they see the data of what we've delivered, they'll extend it because that's typically how they do things.
Understood. Last one for me. Steve, obviously, you're very active with a CLA. You've indicated plans to work with Congress. Can you just give us an update?
It seems to me that the stock is not assuming any potential change to PAMA whatsoever. So just give us a sense of what's actively going on. Sure.
Well, first of all, we need to plan on the worst, okay? And I think that's what everyone's dialing in. But we're not accepting that, okay? We're not accepting that as a company. We're not accepting that as a trade association.
So first part of this is we filed the lawsuit. First, judge written the lawsuit for jurisdictional reasons, not in the merits of the case. It was ruled against us, but we have appealed that. So we're moving forward with that appeal. 2nd is we continue to engage with CMS.
I'm actually hopeful there's some new leadership at CMS. We're just there a couple of weeks ago. They are working with us. They understand where there's gaps in the data collection process. And this latest change with capturing more of the hospital data and the data collection was a step in the right direction.
And frankly, they've admitted they haven't collected enough data with reaching out to us for that. And then finally, as we're working all the different committees in Congress to tell them, in fact, we support this market based pricing. But unfortunately, CMS got it wrong, and they're going to need a legislative solution to make sure they get it right. And so we keep on working those 3 prongs. And I tell you myself and my colleagues on the Board and throughout the trade that are trying to work this in an active way.
It's an active part of what we do in Washington.
Time for one more.
Not looking for guidance for next year, but could you just frame for us how we should think about your uses of free cash flow for next year, given the fact that there will probably be sizable opportunities for some labs that can't afford to be in business. And just sort of putting that against the value of where your stock is today and how we should think about that?
You want to take it first?
Sure. So if you look at the environment of laboratory providers that are impacted by PAMA, we're not going to buy POLs. We can't buy POLs. So it's more likely that as they feel this pressure, they're going to close-up and we're happy to come in and help serve their patients. You've got independent labs that absolutely are feeling pressure.
We've done some of those acquisitions expect the major momentum to come through hospital outreach as you kind of cycle through this 1st year and they do a look back into the slide that Steve pointed out where 80% of the C suite is not familiar with PAMA. And it wouldn't be shocking because when you look at the revenue from their outreach business as part of their overall hospital system, it's just not big enough to necessarily be on the radar. And if you're the laboratory and running that business, you're not very likely to raise the red flag and say C suite, I've got a problem, because that could lead to a transaction. So it's not entirely surprising that it's not been on the radar, but it's going to be because as you know, they start looking back and as you know, this starts flowing through especially into next year when it's more severe, as Dermat had shared and others that typically a hospital system has a larger proportion of the revenue exposed to Medicare. Medicare pays for over 20% of the laboratory work in the country.
We only have about 12% of our revenue from Medicare. I believe our chief competitor is the same zip code. So by definition, everybody else is way overdeveloped on Medicare. So I would hope and based on our pipeline and based on other things that we see that we would deploy a significant portion of our free cash into acquisitions and we think hospital outreach could be a major part of that.
If we could find real growth and we can have a positive accretive ROIC, we believe that's a good value story for our shareholders and we'll do the deal. If we can't, we won't do the deal. So we have to find those process to make money.
All right. Well, that is it. Steve, do you want to clarify?
So thank you very much. It's been a good day. We appreciate your time and attention. We talk about all the opportunities. We think there's a lot of opportunities.
We brought you through our strategy, which we think we've worked in a great deal over the last several years and made a lot of progress and hopefully you do as well. But as importantly, you saw the team, You saw the team. The team has been with us for a number of years. And what you see in this team is a team that's confident, a team that's competent and a team that is committed, but equally you see a team that is passionate. So you need to have a good opportunity, you need to have the strategy, but you also have the team.
So with that, I'd like to just remind you of what we said at the beginning, so you can leave this in your mind as you leave here today. First of all, we have a fabulous opportunity with Access. If you haven't heard that today, please hear it now. Access is one of the biggest operating team we've had for over a decade. 2nd is we are going through a we will go through a structural change in this industry.
There's no question in my mind we have catalysts now in the marketplace we've never seen before. That's affording us an opportunity to buy at least 2% of revenue growth per year. That will be accretive to revenue, we're accretive to our ROIC. We will make money. We believe PAMA has two sides of the sword.
On the one side, Mark described it, it will be hard because we'll have to make it up in cost. Hopefully, you saw an opportunity that we have more opportunity in front of us to get more efficient in how we run our operation and run it better. But at the same time, the other side of that opportunity is it is going to be an accelerator for the consolidation that we see in this marketplace. We also believe that hospitals need our help. We've been around this for about 4 years.
This is a fleeting opportunity. We've built a business around that. We're engaged around hospital strategies. We're engaged with the CEOs and CFOs that need our help in thinking through their last strategy, and we're a proven partner in delivering on that. And that affords us a fabulous opportunity for growth.
The brand that we have in this marketplace is the strongest brand. The brand is getting stronger every day. And increasingly, the brand in health care is the reason why patients and physicians will choose Quest Diagnostics in this category. And so hopefully, you see that, you understand why we're behind it, and remember that only a few large players can make those kind of investments. And then finally, you think about the portfolio, I hope we've made it clear we have this strong growing profitable business we call General Diagnostics, but affords us an opportunity to invest in advanced diagnostics and the fabulous opportunities around data and services.
Those are going to grow faster than that core. And so collectively, that's why we feel confident around that 3% to 5% top line growth and mid single digit earnings growth going forward. So thank you for your time. Thank you for your attention. And thank you for your support.
Have a great day.