Welcome to the Quest Diagnostics conference call. At the request of the company, this call is being recorded. The entire contents of the call, including the presentation and question and answer session that will follow, are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. I'd now like to turn the meeting over to Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead, please.
Thank you. Good afternoon. I'm here with Steve Rusckowski, our Chairman, President, and Chief Executive Officer, and Mark Guinan, our Chief Financial Officer. During this call, we may make forward-looking statements, and we'll discuss non-GAAP measures. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics's future results include, but are not limited to, those described in our most recent annual report on Form 10-K, subsequently filed quarterly reports on Form 10-Q, and current reports on Form 8-K. Here's Steve Rusckowski.
Thanks, Shawn, and thanks, everyone, for joining us today on short notice. This afternoon we announced that UnitedHealthcare is expanding its laboratory network by adding Quest Diagnostics as a national provider beginning next year. Before we get into your questions, what I'd like to do is help you understand what this strategic collaboration is all about and how it differs substantially from past health plan contracts. Mark will talk about what you can expect related to the financial implications of today's news. As you know, since arriving about six years ago, I've been working hard with our team to make this day a reality, and I'm very excited to share the news and our perspectives with you today. I'd like to start with our two-point strategy, which is to accelerate growth and to drive operational excellence.
One of our five growth strategies is to expand our relationships with health plans and health systems. Expanding health plan access is one of our key areas of focus. We have been making great progress with hundreds of health plans, some big and some small. As we enter 2019, we will have the best health plan access we've had in more than a decade. In fact, we will be in-network for approximately 90% of all insured lives nationally. While these relationships are contractual and related to being a network provider, they're becoming more and more strategic every day. More than a decade ago, UnitedHealthcare was Quest's largest customer. In the current era, however, Quest has been an in-network provider to UnitedHealthcare in only a handful of select markets and in our AmeriPath anatomic pathology business. Today's news changes that.
Starting on January 1st, 2019, Quest will participate as an in-network national provider for more than 48 million UnitedHealthcare plan participants. Health plan contracts of the past have often provided access in return for steep discounts. This partnership is different. This agreement will enable United to enhance and simplify its members' experience, reduce costs through value-based programs and incentives, and improve the coordination of care with physicians over time through data sharing. I'd like to speak about each of these innovative ideas. First, we've made excellent progress becoming the consumer-friendly laboratory, which is one of our five growth strategies. We're refreshing our patient service centers and making them more convenient and centrally located, increasingly in retail environments. We are digitally enabling the consumer experience with our e-check-in capabilities and real-time cost estimations to provide price transparency.
We are bringing information capabilities to consumers with our MyQuest application, with more than 5 million users. Additionally, when members use Quest, they can save on their out-of-pocket healthcare costs, and they will save their employers money by avoiding higher-cost boutique or hospital labs. Our focus on enhancing the consumer experience is making this better and gives us confidence in our ability to compete for business in open health plan contracts like this one with UnitedHealthcare. Second, Quest will partner with UnitedHealthcare on value-based programs. As noted in our press release, together we've developed a value-based approach to laboratory services that will focus on patient outcomes, coordination of care with physicians, and cost. We are bringing to laboratory services the same type of incentives and enhanced patient experience that United currently has in its account and care arrangements with more than 1,100 hospitals and 110,000 physicians.
Even more exciting is the prospect that this collaboration could lead to new benefit designs focused on incenting individuals to use high-quality and cost-effective laboratories like Quest Diagnostics. We expect to have more to say on this in the future. Third, United and Quest will share data and insights to help providers improve patient care. This partnership features data sharing, and incentives that focus on quality, cost, and experience. This will help support better healthcare outcomes, enhance the coordination of care with physicians, and identify treatment recommendations that are more personalized to an individual's care needs. This agreement with UnitedHealthcare builds upon Quest's strategic relationship with UnitedHealth Group. Quest has collaborated with Optum360 since 2016 to reduce billing complexity and deliver new technology solutions to provide more patient price transparency.
Quest's real-time estimation technology uses data provided by UnitedHealthcare to tell patients at the point of care how much their testing will cost before we collect the specimen. We're providing wellness services for Optum and its supporter customers. As Optum Care continues to expand by acquiring large physician practices, it has become one of Quest's largest customers for diagnostic information services. Finally, Quest is also working with Optum, UnitedHealthcare, and others in launching a pilot program applying blockchain technology that will improve provider data quality and reduce administrative costs. In closing, Quest offers a terrific value proposition. Our operational excellence strategy has allowed us to improve quality and service, and also has made us a more efficient provider benefiting patients, providers, employers, and payers. For the patient, that means a superior customer experience and lower out-of-pocket costs. For the provider, it means making a complex process smooth and seamless.
For the employer and payer, it means better insights, outcomes, and lower costs. We're excited about this new strategic relationship, which we also believe will enable Quest to grow revenues and earnings faster. Mark will talk about how you should think about the financial implications of this news. Mark?
Thanks, Steve. We're all excited to be a national in-network provider to UnitedHealthcare starting next year. I know you have questions about how this announcement impacts our 2018 results, our 2019 guidance, and our 2020 outlook. As you know, we don't disclose details of our contractual arrangements. What I can tell you is that this is much more of a strategic partnership than the hunting license agreements of the past that have focused largely on price. As Steve said, this partnership includes a number of novel elements such as data sharing, value-based incentives, and potentially new benefit designs. We have built a strong relationship with UnitedHealthcare and UnitedHealth Group based on trust and mutual respect. You can assume that United won't overpay for lab services, but you should also assume that we follow pricing discipline.
The unique value-based elements of this contract also provide opportunities for financial incentives that could further enhance the economics of this relationship. In terms of investments to prepare for this new contract, when we disclosed that we are investing $75 million of tax reform savings into the business, we anticipated using a meaningful portion of it to further strengthen our customer experience and upgrade our infrastructure to support UnitedHealthcare members and physicians. That includes the elements Steve spoke about earlier, including patient service centers, digital services, as well as some operational enhancements in our lab and field service networks. In terms of 2018, we are not changing our full year guidance at this time.
You'll recall, we expect to deliver continued acceleration of top-line growth of 4%-5% and more than 20% adjusted earnings growth this year, driven in part by solid mid to high single-digit earnings growth from operations. We also are not providing 2019 guidance today. We expect to provide more details on our 2019 performance, which will include the benefits of this partnership later this year at our Investor Day, which is scheduled for November 29th in New York City. That said, we are confident in our ability to continue to grow both revenues and earnings in 2019. Moving to our 2020 outlook, at this time, we are reaffirming our long-term outlook of 3%-5% revenue growth and mid to high single-digit earnings growth.
We would expect that this expanded relationship will help us move higher within these ranges, versus our previous view of being toward the lower end as a result of PAMA. We expect to provide a more granular update of our long-term outlook at our Investor Day later this year. I'll turn it back to Steve.
Thanks, Mark. That concludes our formal prepared remarks. We'd be happy to take any of your questions. Operator?
At this time, if you would like to ask a question, please press star one on your touch-dial phone. Please try to limit yourself to one question. One moment, please, for our first question. Our first question is from Brian Tanquilut with Jefferies. Your line is open.
Hey, good afternoon, guys. Congratulations. Steve, question for you. As I think about how you try to ramp this up operationally, I know you described it, or marked it as a hunting license. What needs to be done, in your mind, in order to shift some share from Labcorp to Quest? If you don't mind describing some of the markets or calling out some of the markets where you believe you have geographic strengths relative to them, where it's probably easier to grab share, and shift some of the volume.
Sure, Brian. Well, first of all, if you think back to some of the materials we've provided to you, if you go back to our 2016 Investor Day, we always lay out the marketplace. Just to remind all of you, it's about a $50 billion market. If you recall, when you think about Quest, we have about 15% of that market. There's a lot of market that we can take advantage of. What we said in our prepared remarks, with this news, in 2019, we'll have close to 90% of the insured lives with access in our ability to compete in that marketplace. What we've been hard at work doing is, with our growth strategies, continuing to work on ways that we continue to deliver the best value proposition in this marketplace.
We believe our consumer strategy, which I spoke to, will help us, and it potentially benefits our health plan customers, to make sure that they have the best member experience. Second is with our advanced diagnostic strategy. We're bringing the broadest array of diagnostics, both routine as well as sophisticated diagnostics to the marketplace. Third is we talked, and we actually have a growing number of examples of using our data, and from that data, we're actually providing extended care services to the marketplace. With all that, with the opportunity now for physicians and patients to have a choice, we think we clearly laid out reasons why they could choose Quest Diagnostics. What we've started, what we just shared with you, with the benefit of tax reform, we said that we're taking about $75 million of it, investing in this business.
We actually started earlier this year in anticipation of this exciting day, that we'll start laying the seeds with the investment in our patient service centers, with our investments that we need to make in our sales force, investments we need to have for additional capacity with some of our laboratory operations to respond with the opportunity that we have in front of us now to gain more share broadly in the marketplace. So Mark, anything you'd like to add to that?
Yeah, just, Brian, I obviously wasn't clear in my prepared remarks because what I was trying to say was, this is not a hunting license. This is much more than that. In fact, I think, in recognition of some of the positive points of differentiation that we bring to the marketplace that Steve and I referenced, whether it's additional capabilities of real-time cost estimation, our MyQuest app, some of our data capabilities, that actually, in partnership, United will be shining a light on those things. It is not just, "Hey, you're in network, good luck." Actually, they recognize that there is differentiation.
There are certain providers that provide better value than others in the marketplace, and this is a partnership that actually will not just be all on our shoulders, but actually United, as I said, will be shining a light on some of these to make sure people are clear on some of those points of differentiation and value within the laboratory services.
Operator, next question.
Our next question is from Jack Meehan with Barclays. Your line is open.
Good afternoon, Jack .
Good afternoon. First, obviously, huge news, I think, for both you and Labcorp, congratulations.
Thank you.
Before returning to United, I need to ask, what's the latest on the update in terms of the progress with Aetna? Should we expect any announcement there shortly? Just a second question. I can't help but tell that the press releases are almost identical. Does the renewal impact any other independent labs or any other regional plans moved out-of-network? Thank you.
Let me take the beginning of this, that is where we stand with Aetna. Our Aetna relationship continues to be very strong. We've shared with you in the past, we've extended that contract. That contract extends beyond 2019. What we also have shared is that, starting in 2019, it does afford them an opportunity to have another preferred laboratory besides theirselves. It's for them to decide how they proceed with that, this does afford them an opportunity to do that. Given our strong presence and given what we're announcing today, we feel very good about our prospective access to the marketplace, where, as I said earlier, with the earlier question, we have a tremendous opportunity in front of us. We only have 15% share. We have tremendous opportunity to gain share from all the different scenarios you could think of in our marketplace.
This just opens up a window of opportunity for us to grow both top line and bottom line. Mark, do you want to share a perspective on the press releases?
Just, given the timing that we both signed contracts that go to 2019 and beyond, I think there was a desire on the part of our partner to have some consistency. You shouldn't read anything more into that. Quite frankly, we don't know what United's network will be fully. That's their decision. We're not involved in that in any way, shape, or form. What we do know is that, as we spoke, that there are certain quality expectations around providers that we're very excited about because we feel we can meet, and there are certain capability expectations that I believe United is going to require in terms of being a preferred provider, and we feel very confident around that. In terms of who might be in or out going forward, we're in, obviously, the public knows Labcorp will be in, and beyond that, we don't know.
Operator, next question?
Our next question is from Ricky Goldwasser with Morgan Stanley. Your line is open.
Good afternoon, Ricky.
Hey, good evening, congrats on the contract.
Thanks.
A couple of questions here. First of all, I know that you're not guiding right now for fiscal year 2019, but just conceptually, as we think about price, you talk about this value-based outcome contract. As we think about modeling Quest for the long term, should we think about price from this relationship actually improving over time as you capture more of the value?
Yeah. Ricky, I can't comment on that specifically. What I can tell you is that we have a base price in the contract that's a market-based price that we feel good about, United feels good about, then based on performance, we can earn upside to that. What that might mean in terms of trends and so on and so forth is yet to be determined. We wanted to share that as an example that this is a partnership, where as we create value, United shares get some of that, and we will get some of that as well.
Therefore, we're really excited about the way this has evolved from the old relationships between the payers and the labs, which was all about price, and we were seen rather equally, somewhat commoditized, to now where we're at with many payers, especially in this relationship, where they see the differentiation. Although we still have a very good price relative to many of the providers in the marketplace, which isn't always fully understood by a lot of the market and the stakeholders, we don't need to go to a lower price because we already present that really good value.
As Mark said in his remarks, when we talk about our outlook, this improves our prospective view of revenue growth and earnings growth. Now having this news out there, we feel more bullish on the prospects for growth and the prospects for earnings growth.
Our next question is from A.J. Rice with Credit Suisse. Your line is open.
AJ.
Thanks. Hello, everybody. Two-part question, I guess. First of all, you referenced the Optum Care business that you do today. I know that's been a big additional growth area for you. Do those contracts and that business get folded into this, or does that stay as a separate contract you have with those Optum-related physicians? Then just also on the comments around the investments that you're going to do this year, are those sort of one-time in nature that you'll have to make this year, or is that going to be an ongoing thing that persists for several years?
Yeah, let me see. The first part is, the programs and the opportunities we have with the rest of UnitedHealth Group are separate. We think about this relationship overall. We manage it that way with UnitedHealth Group. With the Optum Care opportunities that I mentioned, as they acquire more physician practices, it affords us more of an opportunity to work with them strategically to use more of Quest. As I mentioned, they're buying some practices and buying some businesses that are good customers already of ours. On that side of the business, Optum Care, they've become one of our biggest customers. In the best relationships where it's strategic, what you find is there's some symmetry. We actually do a lot of work already for United. We believe this news today will afford us the opportunity to do significant more business with United.
They're doing business with us. With OptumInsight, with Revenue Cycle Management, our billing function that we announced in 2016, they're one of our strong suppliers, we feel good about that relationship as well. This relationship continues to build, this is another example of it getting stronger. Mark, you want to take the second part?
Sure. Just a quick one more comment on the relationship with Optum. Not only is it a separate part of UnitedHealth Group, it's a direct bill relationship like we would have with a hospital. It really would not be impacted by the third-party rates that we just negotiated with United. In terms of the investments, the way you should think about these investments is they're only investments to the extent that we're adding expense ahead of the volume. Obviously, we're going to do that because we want to make sure we're fully prepared and that we're able to meet the additional requisitions that we're fully expecting to come. Once that volume comes, it really is just cost of sales.
As we add phlebotomy, as we potentially add some logistics, we add some resources to our laboratories, it's an investment for a while, that will translate, obviously, into just cost of sales once we get that ramped.
Our next question is from Patrick Donnelly with Goldman Sachs. Your line is open.
Hey, Patrick.
Hey, how are you guys?
Good.
Just in terms of pacing of the share gains, how should we expect the share shift to progress once things open up on the 1st? Previously, we went from exclusive one to exclusive the other. Now you're both going to be in-network. Is it going to take a bit of a learning process for people to think of Quest as being in-network with United from the doc side, or how do you get ahead of that and make sure everyone knows the second it hits?
Yeah, I think it'll be evolutionary. Again, we like to think about the opportunity as that 85% of the marketplace that we have a good access to now, 90% of the insured lives, big opportunity for us. There's thousands of laboratories that provide services to physicians and hospitals throughout this country, we're the largest, and we think there's more of an opportunity. One of the areas that we've worked on to continue to accelerate growth is getting the best access we can with health plans. This just moves us to a whole different level, starting in 2019 contractually. As this news gets out in the marketplace in 2018, we'll be talking to the clients about it, what it means. They'll consider it when they're thinking about their future direction with laboratory suppliers.
The news will be out there tonight, I'm sure tomorrow morning we'll have some calls from clients asking what it means for them.
Obviously, as I'm sure you would anticipate, we've modeled things and have a high degree of confidence that we will gain enough business in 2019 that it will be positive to the top line and bottom line relative to where we would've been as an out-of-network provider. While we're not going to size at this point exactly what that means, it will be enough of a pickup early enough that we know we're going to be better off in 2019.
Our next question is from Ralph Jacoby with Citi. Your line is open.
Hey, Ralph.
Hey. Thanks. I guess I was just wondering, is there a length to the contract, or is it just sort of open-ended? Is the pricing transparent, meaning that you and Labcorp sit at the same rate per test, or do you not have that visibility? Thanks.
Yeah. We don't share specific timeframe of contracts and specific terms, but most of our contracts are three to five years, so you can assume it's in that kind of range. As far as specific pricing, Mark, what would your.
Yeah, we have no knowledge of the rates with anybody else. We only know our rates. Yeah, we wouldn't know that.
Again, if we're in-network, it provides an opportunity for us to have lower out-of-pocket costs for the patient, and we believe that it allows that physician, once again, to simplify the workflow, which many physicians are trying to do, and gives them an opportunity, or her an opportunity, to reduce the number of laboratories they're working with. Obviously, our in-network rates will be very competitive versus other choices that are available in the marketplace, and we think that's good for payers. Next question, operator.
Our next question is from Kevin Ellich with Craig-Hallum. Your line is open.
Hey, Kevin.
Good afternoon. Hey, guys. Thanks for taking the questions. Couple from me. Mark talked about the base price of the contract, then you could see upside based on performance. Wondering if you could give us a little bit of color as to what some of those performance drivers would be. Then on top of that, with the $75 million of investments that you've kind of earmarked this year and you're kind of planning ahead, is there additional on top of that that you need to make? I guess, how do you know how much volume to plan for? Thanks.
The $75 million, remember, is really in front of the volume, it's not all related to this. We've talked about a portion of it was investing in our employees. We announced a $500 bonus per employee. A portion of that was accelerating our work on advanced diagnostics and on toxicology, a portion of it is investing and preparing for expanded access. For that piece, it's really only an investment to the extent that it's ahead of the volume. Therefore, the way you should think about it would just become a normal course of our cost of sales as we obviously get significantly more requisitions and so on. You should not anticipate additional "investments" because we'll, like we do manage the business regularly, we will manage that in terms of our resources as we grow the business, as we anticipate.
We usually have a pretty good job, we've talked about foreshadowing where growth is going to come from. We manage ourselves through a CRM tool. We have a pipeline of new accounts. We have a good ability to anticipate when the business is going to grow. Just like we've been doing historically, even though this may bring a little more volume in a shorter period of time, we can manage our investments to really ensure that they're aligned with the volume of business that comes with it. In terms of the incentives, what I can say at this point is really they're tied to two things. One is quality metrics, which we pointed out, we have to deliver, there are things that we're very confident we can deliver, things that in many cases, we believe we're best in class at doing.
It is also some gain sharing where as we grow and we're saving money for United and its patients-
We get to share in some of that, which will be supplemental to our base rate, as opposed to we get a rate, as others save money, they get 100% of that. It really is aligning the incentives for us to move high-cost work into Quest. United, as I said, is shining a light on this also because they recognize, as we've been saying for a number of years now, we're part of the solution. We're at a very good rate already, we didn't need to move that down. We're already relatively a great value, really what it's time to do is move some of that work to us.
Our next question is from Dan Leonard with Deutsche Bank. Your line is open.
Thank you. To Carter, hello. Possibly you could offer some color on the portion of dollars in this contract that would be subject to a value-based arrangement. Secondly, how are you thinking about the knock-on effect for Medicare pricing in 2021 and beyond, given that the collection period is first half of next year when you're now in network with United at presumably lower rates?
Take the first part.
On the first one, yeah, I can't comment on that. Actually, because it's a multivariable equation, even if I was willing to disclose it's not something that I could size for you at this point. What I would do, Dan, is think of it like PAMA. PAMA is known, it can only get better. In terms of our relationship with United, as I said, we feel like we have a fair rate, a market-based rate as our base, and then there's upside if we perform, and we certainly expect to perform, but it would really be difficult to size at this point. Obviously, as we get into the contract a little more, we might be able to share some detail, but at this point it would be premature, especially because we're not commenting on anything beyond 2018.
In regards to collection and PAMA, as you know, Dan Leonard, we're pushing back as a trade association that we believe CMS got it wrong with how they collected all the data. What was intended to be a process to gather data from the market, they ended up with excluding the vast majority of laboratories and only included a few of the larger. We are arguing that in court. We are hopeful that we'll hear something in the summer, is our latest estimate of when we might hear that. Actually, we're mounting a very broad program with our trade association to make sure that we can increase the volume on how their approach is wrong, and how this will affect Medicare beneficiaries and how we need to get it right.
With all that said, eventually the data will be collected, hopefully in the right way, with all laboratories. In that data that we sent in had us with a portion of United's business, and we hope to get more of United's business. How those prices will move around the marketplace, it's hard for us to estimate, since we don't have visibility of the piece of that. We think this is good for the market and good overall. We'll see how the dust settles, but hopefully the movement in price overall is not substantially different than what the market would be, given we have such a small share of what United today in aggregate.
Our next question is from Lisa Gill with JPMorgan. Your line is open.
Hi, Lisa.
Hi, Steve and Mark. Thanks for taking my question. I know that earlier on you talked about Labcorp also put out a press release, and it looks very similar to yours today. Is it that United is trying to shift business away from whether it's hospitals or other small labs towards you two large national players? I'm just trying to understand the difference between what your offering is versus what their offering is and what United is trying to solve for. Secondly, as we think about the 15% market share that you talked about you have today, how much of that is out-of-network and therefore, you'll be now coming into network pricing as we think about 2019? Will there be kind of this step-up approach where you initially take the price down to be in-network and then you gain some market share over time?
I just want to understand the competitive dynamics around this and how to think about that.
First of all, the 15% of share is our estimate of a $50 billion market and what our share is. Go through the quick math, it's roughly $7.5 billion. That's about the size of our business that we put in that estimate back in 2016. That's where the 15% comes from. The large majority of that is in-network. It's also our government business, Medicare, Medicaid. There's other portions of our business within it. That's the starting place. We share that because the opportunity is the broader marketplace. As we've talked about, our value proposition is very strong, and we believe second to none with our quality, with our service, and you look at our price point versus other options that payers have, and patients have, and physicians have in the marketplace.
We often have talked about our pricing for what we do versus a regional or what we refer to in our remarks, boutique lab, they would be higher. If you look at hospital outreach, we have said before, in many cases, you find hospital outreach commercial pricing to be two to five times more expensive than ours. If you look at the opportunity broadly in the marketplace as a payer or as a self-insured employer as ourselves, what we're trying to do in general in healthcare is moving to the best quality, best service, and best value proposition in the marketplace, and that's what this contract is all about, is we're proud to say that United has let us back in-network.
The reason for that is we feel that they feel, along with us, is where healthcare is headed, it's all going to go to where the best quality and the best service and the best price is. It being in a contract with UnitedHealthcare will afford us an opportunity to get more share.
Lisa, to answer your question, a very small portion of our $7.5 billion is out-of-network. Certainly from a volume perspective, even less. Yes, when you move from out-of-network to in-network, you negotiate a rate that's going to be lower than the out-of-network rate. However, as we've mentioned previously, that's fully contemplated in our modeling. It's fully contemplated in the statements that I made around 2019. It's going to be better with us being in-network. The other thing to remember is that, while when we got paid for the members who have out-of-network benefits, it was a higher rate, there was a proportion of the fully insured lives within UnitedHealthcare where we got paid nothing. There's a little bit of an offset there. It's not all a reduction. The other question you asked was about what they're trying to accomplish.
What they're trying to accomplish, they're not trying to steer away from anyone. They're trying to recognize and promote what the best practices and the best offerings are within this space. They've defined those. They've worked with us to tell us what they expect from us, and I'm sure that any other lab that can provide that or want to commit to that will have the same opportunity to compete as us. They've really spent a lot of time to define what's important, and the important thing has just moved well beyond price. The pricing is good, whereas in the old days, that may have been all that was focused upon, there's a lot of other things they recognize that bring value, and that's what this is about. My guess is that's why they also worked out, with our chief competitor, an extension as well.
I'm sure you'll talk to them to get more detail.
Yeah, just to finalize this question, many of you have heard Mark and I and Shawn talk about, we believe that the best direction for health plans is to have ourselves and other large nationals on contract. It turns out now with this news, if you look at the five large national providers, we'll be on contract with all five. Aetna is the one that, as I said earlier, we have an excellent working relationship, and we'll see what they do. We've said for a long time, the best opportunity for us and the best opportunity, we believe, for all the different stakeholders, is to give us access to that marketplace because we compete very well. This is strategic to where we wanted to be, and we're happy to announce today that we got there with United.
Our next question is from Amanda Murphy with William Blair. Your line is open.
Hi. Thanks. Good afternoon. Actually, just had a quick follow-up to Mark, your comments on United, and then one more after that. Can you just remind us again roughly what % of the United business is already in-network for you? And then just a second, one of the things I think we saw previously when these contracts initially were signed exclusively a few years ago, there was this pull-through benefit. To your point, now you're the only one in-network for all the major payers. Could we possibly see some incremental benefit, just given physicians might want to just use one laboratory, for example? Maybe market share gains with other payers as well. Thanks.
A couple things, Amanda. First off, there are a number of regional labs that are in both. When you say we're the only ones, that's not factually correct. Actually, we've created a competitive opportunity for a number of other competitors because we were not in United, and our chief competitor was not in all the nationals as well. That was an advantage for some of them that's going to go away. We also, as Steve mentioned, we don't know what's going on between Aetna and our chief competitor, but we in no way would want to suggest that they're not going to work something out. I think that's really, really important.
In terms of what % is out-of-network, we don't disclose that, but what we have disclosed is that basically we've been in-network in Connecticut, in DLO, our JV in Oklahoma, in Nevada, and then our anatomic pathology business has been in-network. All the other work that we've been performing, especially on the clinical side, has been out-of-network.
Our next question is from Mark Massaro with Canaccord. Your line is open.
Thanks. I'll try on the last question, of the 48 million lives with United, how many of them will be incremental to Quest? Two other quick ones. Mark, can you comment if the base price in the contract is substantially equivalent to the base price of some of your other larger contracts? Thirdly, regarding Aetna, Steve, it seems like the prevailing investor sentiment is that the plans are likely to open up to both lab providers. Steve, you seem to be pretty optimistic that you will be able to extend Aetna beyond 2019. Is there any change to your confidence
getting access to United that influences your confidence that you can extend Aetna long-term exclusively?
Yes. The first question was of the 48 million network Mark went on.
Yeah.
Right now, as I mentioned, for anatomic pathology, we're in-network for the most part for all of those lives. Not completely, because there's some HMO plans that we're not in, but for the most part, we're in for pathology. On the clinical side, a very small portion of those. Starting January 1st, we will be in network for a vast majority of the 48 million. The one piece that has not been fully worked out yet is they do have some HMO plans, and that's to be determined. We're trying to work out a way to get in there, but at this point, it's not been finalized. Still a vast majority of the 48 million on the clinical side and continue to be on the anatomic pathology will be available for us to compete for.
Yeah. The last question is, Aetna, we've extended it past 2019 as well. We can give you specifics, so we've extended it past 2019, and we feel great about the working relationship. Irrespective of what they decide to do, whether they want to change our exclusive national relationship starting in 2019, we still believe we're in great perspective with them. If you look at the net of what we think will benefit us in terms of access in the marketplace, and you look at the shifts, and if you look at where we're strong, we've talked about this before, particularly in some of the larger states like New York, Florida, and in Texas, our access is north of 95%. We feel very good in those big states where we have strong presence.
You also asked about the pricing. Obviously, I can't comment on pricing specifically. It's competitively sensitive, but as I mentioned in my prepared remarks, we think it's a fair price. United obviously is looking to get the best value for themselves, for their members, and obviously, you'd expect them to negotiate tough. We've talked about pricing discipline for a number of years. They knew we were coming to the table with pricing discipline and looking for something that was much more strategic, and we talked about a lot of ways that we could create value above and beyond price. We're very happy with the price, but I'm not going to dimensionalize it relative to other customers of ours.
Our next question is from Bill Quirk with Piper Jaffray. Your line is open.
Great. Thanks. Good afternoon. Congrats on the deal. A couple of questions and then a quick follow-up. First off is, are you aware, as part of this deal, has United exited or has signaled to exit any regional contracts that would obviously help with respect to share gains? Secondly is, with respect to future M&A that you do, will this United contract be extended to that? And then I have a follow-up. Thanks.
As you would expect, Bill, it's not for us to say what United may or may not do with other laboratories. We're proud to be in their network now starting in 2019, and Mark, do you want to say anything about
In terms of M&A, if you mean if we acquire other labs, yes, as soon as they're part of Quest, then they're going to be in-network as well.
Okay. Excellent. With respect to the potential revenue kickers they could get based on the metrics that you worked out with UnitedHealth, I guess two-part question. One is, when is the soonest we might see something like that? Is it something we could see in 2019? Secondly, presumably United is collecting the data which would trigger this. Do you have some sort of audit capabilities, or how do you make sure that everybody toes the line on that? Thanks.
Yeah. Yes, we fully expect to earn some of this in 2019. Obviously, that's to be determined, but yes, we think that they're achievable. It's not something that's going to take several years. In terms of audit capabilities, we're very comfortable. We're both going to see the same data. We've set this up in a way that we're comfortable it's not going to run into any sort of speed bumps, and therefore, no worries from a, "Are we going to be able to work through these things and clearly agree upon what we've earned and therefore, what kind of incentive payments we might get?
Operator?
Our last question is from Ann Hynes with Mizuho Securities. Your line is open.
Ann.
Hi.
Hello, Ann.
I'm going to ask this question again in a different way. I think it's been asked, but I guess I think what people are trying to figure out is, for years what we've been told is that because you are out-of-network with UNH and Labcorp is out-of-network with Aetna, a lot of these regional labs use that for doctor's offices to gain market share, and maybe both you and Labcorp didn't have market share with some key customers. Assuming Labcorp gets back into Aetna, does this create an opportunity maybe for both the national labs to get more market share with the big payers? I guess that would be my first question. Then the second, do you know how much market share both Quest and Labcorp have within the UNH lab business?
I know you said earlier that UNH will require some quality and other requirements from the labs that maybe some of the smaller labs can't meet. Is there more opportunity for both of you to recapture even more market share within the UNH business?
Ann, I guess my response would be, I'm not going to speak for anybody else, including our chief competitor. This absolutely will give us a greater opportunity to grow share in a highly fragmented market. We only have 15%. The other thing I'll say is that within the national payers
They're large enough that you can imagine that our shares cannot be materially different in the national payers than they are within the broader market, other than that we're underdeveloped in Medicare. Certainly, our claims are smaller than our proportion in hospitals, and physician office labs are overdeveloped in Medicare. Therefore, that should give you the comfort that there's lots of opportunity for anyone, including Quest, to expand their share and impact a lot more patient lives within any of the national providers. The way that we're looking to do that is really driving transparency towards this positive differentiation around all the things that we mentioned. Not all labs are created equal. We got a great price, we have fantastic quality, but we have all these other features that the market, and fortunately, the payers, are really starting to value and see as something important.
All right. Just as a follow-up, in your prepared comments, you talked about there could be an incremental benefit over time that UNH could do some benefit design changes to incentivize patients to use, similar like at Quest. Can you give any more detail or timing on that potential?
Well, as it gets to fall, they work with their clients, they'll just like you do with other providers, and more providers, and steer their benefit design, or design their benefit design, to create their benefit design to steer more towards, again, in-network preferred providers. With this relationship, clearly we're one of the preferred laboratories. Incentives will be put in place, like with all providers, to move more volume towards us.
We've shared in the past that some employers have done that, and they've been successful in saving their employees and saving themselves a lot by putting economic incentives in place for their employees to make choices for better value. While we can't share any detail, and obviously United is deciding and they have to work through some of this detail, think that it's probably going to be akin to some of the things we've shared that employers have done in the past.
Yeah. As you asked the question to start with about how they play this out, I think it's always best to give real examples in some of our states that I mentioned earlier. If you take New York, where we have good regional access with payers, we have now all the nationals, as one of our good clients, a physician, had a small regional, because they had a contract with United, affords us an opportunity to be more of their exclusive laboratory provider in New York. If you take Florida, another big state for us, another opportunity for us. There are a number of regionals there. Now we have contracts with all the nationals, we have good clients, so therefore, it is an opportunity for us to help that client, to work with fewer laboratories and preferably, exclusively with us.
If you take Texas, strong relationship in Texas with the regional players. Now with all the nationals, they have great access in one of the largest states in this country, to gain share, throughout this marketplace. If you just think about that and think about these regional players in those specific states and those contracts we have with those regional health plans, this affords us a nice opportunity to pick up share. Operator?
I'm showing no further questions at this time.
Okay. Well, we appreciate your time. We appreciate your support. We'll be talking to you as time goes on. Thank you very much, have a great day.
Thank you for participating in this conference. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics' website at www.questdiagnostics.com. A replay of the call may be accessed by phone at 866-434-5245 for domestic callers or 203-369-0999 for international callers. Telephone replays may be available from approximately 7:00 P.M. Eastern time on May the 24th, 2018, until midnight Eastern time on June 7th, 2018. Goodbye.