Good afternoon and welcome. My name is Lisa Gill, and I head up healthcare services here at JPMorgan. It is with great pleasure this afternoon that we have Quest Diagnostics. Presenting for Quest is CEO Jim Davis. And then for the Q&A, Sam Samad will join us up here. So with that, let me turn it over to Jim.
All right, thank you, Lisa. I'm just delighted to see a few people here at 4:30 P.M. and the last presentation of the day. So thank you for coming and not yet making your way to the pub. Hopefully, you've all heard of Quest Diagnostics. My name is Jim Davis. I've been the CEO for three years. I've been with Quest Diagnostics for 13 years, and I'm privileged to be leading this company. Just to safeguard your disclosure, I'll be making some forward-looking statements here today. So I hope, again, everybody in the room has heard of Quest Diagnostics. The statistics would show that we've tested more than 50% of the people in the room. We test one-third of the U.S. population every year. Every three years, we probably touch about half of the U.S. population. I know we have data on Lisa. Lisa's a great user of Quest Diagnostics.
So look, it starts with our purpose: working together to create a healthier world, one life at a time. We've been talking about creating a healthier world long before others started talking about it. It's been a decade-long message. We're at the center of healthcare. I'm going to show a slide that talks about where we play across all of healthcare. But on any given set of labs, when you ask, "Who is our customer?" You know, our customer is you, the patient. Our customer is the physician. Our customer is the payer. Our customer could be a public health entity like the CDC or a state department of health. Every time we hit the button to release results, the results really go to that many entities. So we really do sit at the center of healthcare.
Again, if you're not totally familiar with us, we touch 50% of the U.S. hospitals and the U.S. physicians in the country. As I mentioned, we test one-third of the U.S. adult population in 2024, and we'll update this on February 10th. But we did, you know, close to 220 million requisitions. 80 million of those 217 we saw personally in Quest Diagnostics. We drew their blood. We drew blood for 80 million people in 2024. So it's a large number. When we say we touch people, we literally touch 80 million. I can't think of any other healthcare provider that actually touches 80 million people a year. Now, the 217, they're not all unique patients. About 110 million are unique. The rest come to us once a week, once a month, once a quarter, depending on what type of chronic or viral condition they're dealing with.
We have over 8,000 locations where we draw blood: 2,000 patient services centers, and then another 6,000 phlebotomists that are in medical office buildings. We call those in-office phlebotomists. 5,000 vehicles that pick up specimens. We drive over 330,000 miles a day. We would circle the globe 22 times if you did the math on that. We're in network with 90%. We cover 90% of all lives. We're in network with 80 billion patient data points over the last 10 years. As you can imagine, a lot of people come to us for data, including public health agencies. 850 MD/PhDs. We do develop our own tests, our own LDTs. That's why we were so passionate about the FDA legislation, which was favorable to us. 1,600 patent pendings. We do play beyond the U.S. We have a lab in Mexico.
We have a very large laboratory up in Canada, which I will test on. As I said, look, lab testing informs every stage of a patient's journey. You know, when you think about what we do: risk evaluation. What is my risk of getting a disease? How are my, you know, how's my overall test? Those first two buckets we refer to as prevention and wellness testing. Diagnosis: you go to a physician or an urgent care center because you're sick. What is causing you to be sick? What direction, prognosis will my sickness take? What type of therapy is best for me? Is my therapy working, and are these results sustainable? Lab testing plays at every single one of those points. About 2% of the entire healthcare spend of the $5 trillion spend is laboratory testing.
It's not that much, but it informs over 70% of the decisions that physicians make along the way. Now, our business today, that prevention and wellness, is really about a third of our revenue. Most of the work we do, fortunately or unfortunately, depending on how you look at that, is really chronic disease and sick care testing. We honestly believe it should be the other way around. We believe that two-thirds of our testing should be prevention and wellness, and a third on that. The only way you get ahead of the chronic care conditions in this country is to do more prevention and wellness. The statistics aren't great on this, but only 50%-65% of the U.S. population actually gets preventative wellness screenings done once a year. And so there's still plenty of demand. And I'm going to talk about the consumer segment later.
It's the consumers that are really driving this segment of testing. Why? Because the tests that you really should be getting in a general health and wellness exam are not always covered by commercial payers. So it therefore forces you to come to us as a consumer. Some of the trends that are driving this business: demographic shifts in the older, sicker population. Those aging into Medicare today have, on average, 2.5 chronic conditions. If I go back 40 years ago, it was about one chronic condition, so almost two and a half times, 250% increase in people as they age into Medicare. It's a sicker population. You've obviously heard Centers for Medicare & Medicaid Services (CMS) talk about this. This is what's causing all the financial concerns with Medicare. Innovations in lab diagnostics. As I mentioned, we develop our own tests.
What we do is we look out there and we say, "Anywhere laboratory testing is not the primary screening or diagnostic tool, we're going to focus on that." The laboratory test that we developed for Alzheimer's test was a direct result of that. Alzheimer's testing was not the paradigm of blood testing. It was the modality of choice for diagnosing and monitoring Alzheimer's disease, was PET/CT. We now have blood-based biomarkers, AB42/40, some of the tau-based tests that can diagnose Alzheimer's at a much earlier point than when you will see it in imaging, and that's where these therapies work. Greater adoption of AI and automation in our labs. I'll talk about that later in the presentation, and then again, an intense focus on consumer in our business around prevention and wellness.
We made a big bet on that four years ago, and I'll talk about how that bet is paid off. In general, the entire laboratory market is about a $90 billion business. So when I say it's about 2% of the healthcare spend, it just depends on what you assume. You know, recent estimates are a $5 trillion healthcare spend market. If it's $5 trillion, we're in a $90 billion market. We're obviously even less than 2% of the spend. So we're not a big portion of spend in the U.S. We look at that market in two ways. The first is the physician office market. These are requisitions that are written for patients. A patient visits a doctor. This could be primary care. This could be OB/GYN. Those are the two biggest segments.
But every allergist out there orders laboratory testing, whether you're an endocrinologist, a cardiologist, a nephrologist, a neurologist, everybody, psychologists, psychiatrists included, order laboratory testing. You can see our share of that market is about 12%. Other independent labs, specialty labs, as well as general diagnostic labs, about 42%. And then hospital outreach labs, you can see, is 35% of the market. And physicians, physician-owned laboratories in their medical office buildings, and they do, I can't see the number that well, but about 12% of the market. Now, look, many times, you know, people characterize this market as us against our nearest competitor. That ain't the case. It's us against the hospital labs. It's us against the physician office labs. They're the ones that are charging two to three times what the independent, the two largest independent labs charge in this industry. And it just makes economic sense.
There's a lot of great quality reasons why people come to the independent labs. On the other side of the equation is the hospital laboratory market. This is the size of the market for testing patients that are sick and in beds in hospitals. It's really the spend. What do hospital labs spend to take care of these patients? You generally don't bill for that. It's part of some DRG bundle that they're getting paid for to treat that patient in a hospital. It's about a $31 billion market. They send out, they refer out about $5 billion worth of business. These are tests that hospitals can't do, choose not to do, low volume, capital-intensive, or require some degree of medical specialization that they turn to Quest Diagnostics or some type of specialty lab. Now, also in that pie, there is Quest Diagnostics running hospital labs.
We call it our co-lab arrangement, where we go into a hospital, we take on the employees, we take on the equipment. It's our supply chain, and it's Quest Diagnostics inside the four walls of the hospital. I'm going to talk more about that. It's an $800 million business in Quest today. It'll be a billion-dollar business in 2026. We made a big acquisition in Canada in the latter part of 2024, a $700 million business at the time. We like Canada. 41 million Canadians, the population is 41 million. We primarily play in British Columbia and Ontario. That's about 52% of the total population. We served over 10 million Canadian citizens last year, so about 25% of the total population. But if Ontario and British Columbia are about half, it means we're touching about 50% of the population in Ontario and in British Columbia.
It's been a very good acquisition. It's met all of our deal criteria. It's ahead of the deal model that we created, and we feel very, very good. We feel good about the expansion capabilities in Canada because we don't play in Quebec, and we don't play in the other provinces, Quebec being the second largest. Now, as we think about our business, Quest is largely a B2B business. That's how we grew up. We serve physicians. We serve hospitals. And I'll talk about some of these higher growth areas. As you know, we've guided this year to a 4%-5% organic growth that largely comes from the physician market. That market has been growing faster than that organically.
It's driven, you know, largely by we're back in network with Elevance, so we got new network access in Colorado, in the state of Nevada, in Georgia, in parts of Virginia, in Washington, D.C. We've extended our geographic reach. We're serving larger and larger customers, and I'll talk more about that on the next few slides. Hospitals, we've been growing that business 5%-6%. The reference side of that business doesn't grow that quickly. It's a 1%-2% business. It's the things, again, that hospitals refer out to us. What's really driving our growth in that segment is Quest inside the four walls of the hospital. It's Quest Diagnostics running hospital labs. And then where we have been investing is three really great growth segments. The number one segment is our consumer-initiated testing, which I'll talk about in more detail.
And then our support of life sciences companies doing work for pharmaceutical companies, doing work for life insurance companies, employers. But primarily, our work with pharmaceutical companies has been a great growth business. And then our data business. We sell data. As I mentioned, we sit on 80 billion patient data points. We're testing one-third of the U.S. adult population annually. Without sounding arrogant, we do know more about the health of the U.S. population than any other organization in the country. We do that by developing new advanced tests, which I'll talk about. And all along the way, it's all about delivering a better patient experience, a better physician experience to drive growth. Now, specifically on the physician side of our business, look, some of the recent trends here you would suggest may not be good for independent labs.
And one of those trends is a loss of independent physicians. The fact is, as physicians graduate from college today, they're not joining independent practices. They're joining large health systems, or they're joining some of the entities that I list across the top of that page. So while the independent physician segment has shrunk, you can see where physicians are going. They're going to other corporate-type entities, which I'll talk about, and they're working for health systems. That is not all bad. In fact, I think the trends of corporate types of ownership are good. As you look across the top of that page, Duly Health, 1,000 physicians in Indiana, Illinois, and Iowa. MinuteClinic, you know, several hundred MinuteClinics in 33 states. Obviously, Optum, 90,000 to 100,000 either owned or affiliated physicians. Oak Street plays in 27 states, 600-plus physicians. Summit Health, CityMD.
We are set up to serve these types of large physician groups. We play in all 50 states. We have labs in over 20, in 18 different states. We're set up to serve national health providers. And when you serve these providers, by the way, you're not calling on individual doctors to win an individual doctor. You're calling on the chief medical officer. You're calling on the head of procurement at these types of groups. So it becomes more of a corporate sell. It's about data. It's about IT integration. It's about scale. It's about having been in network for all the different payers that these health systems serve. So we're set up to win in this space. Again, on the health system side, there's really two major elements to our value proposition. One is reference testing. We do the tests that hospitals don't want to do.
We do the capital-intensive tests, some of the very advanced cancer tests, some of the very advanced infectious disease tests. Capital-intensive, low volumes, or require a high degree of medical specialization. Every health system outsources some amount of work. And by the way, we serve some of the most prestigious academic institutions. Northwestern Hospital is a very big customer. University of Michigan, UCSF here locally, Stanford, all of them refer tests out to Quest Diagnostics. Again, our fastest-growing segment, the collaborative lab solutions, again, it's where we come in and run the hospital lab. Now, generally, we can come into any hospital laboratory and guarantee a 15% reduction in cost by bringing our supply chain. We are the first or second largest lab. We generally negotiate very good prices with our vendors, and we can bring the benefits of that scale right into that hospital.
In addition, most hospitals are near one of our central labs. Not all the tests that are done on-site in that lab need to be done on-site. We can move those to lower-cost environments like our central labs and bring savings like that as well. The last piece of it, while it grows our physician business, it starts with discussions in the health systems. Most health systems over time have used their laboratory dedicated for inpatients to go serve physicians in the outlying communities. It's mostly physicians that they own. Some have come to the realization that it's not a great business. It's not an area where they want to spend capital. New York Presby outsourced that, sold that book of business to us. Why?
Because they simply said the investment, the returns on investments in neurology, cardiology, cancer, women's healthcare are much greater than the return on investments that they can make in their laboratories. And it just wasn't a priority from a capital standpoint. And so they sold that business to us. It's been a great growth opportunity. Look, the one thing we're most proud of over the last few years is the growth of our consumer business. In 2021, we did about $30 million of work with consumers. These are consumers coming directly to Quest Diagnostics through QuestHealth.com or going through one of our channel partners. It was really a $30 million business. Today, based on our fourth-quarter run rate, we achieved our goal of hitting a $250 million book of business. QuestHealth.com is about a $100 million business. And we then have channel partners that are bringing us another $150 million.
Now, we have two types of channel partners. The first we call value-added resellers, VARs. These are people that run lab tests. We provide the information back, and they're generally doing analysis on this laboratory data and providing additional insights back to the patient, back to the customer, the biggest of which is Function Health. Function Health has been an incredible partner to Quest Diagnostics. They're serving a very useful medical need. They're offering tests through Quest Diagnostics that you otherwise, if you go in for a general health and wellness exam, your provider generally isn't going to order Apo B. They're not going to order Lp(a). They're not going to order insulin resistance. Why? Because the payer isn't going to pay for those tests. So you're better off going to one of these consumer companies. Now, we give that data back to Function Health.
They put it through some very sophisticated analytical tools and AI types of environments and then provide feedback back to the patient on how to optimize their biomarkers. That could be through nutrition. It could be through exercise. It could be through supplements. It could be through sleep. I'd love to ask how many people in this room have gone through the Function test, but it's becoming more and more popular, and again, they've been a great partner. The other type of reseller, if you will, are the, we call them the wearables. I personally wear a Whoop. I'm sure if you raised your hand and wore a Whoop or wore a ring, there'd be a lot of folks out there. Look, the whole goal here is to marry your biometrics, the physiological data that I'm acquiring here, real-time.
I'll go back and look at my stress levels after this presentation. But the idea is to marry your biometrics with your biomarkers, okay? And over time, we can monitor all the physiological data in your body: heart rate variability, stress, sleep. Eventually, there'll be nutrition built into this. And then let's correlate that with your biomarkers. We're then working with these companies to develop algorithms to then determine for each individual what is the influence on all those what we call X variables over your ultimate biomarker. So if you're trying to optimize A1C or you're trying to optimize your insulin resistance, what do you need to change personally in terms of your sleep, your stress, your nutrition, and your exercise in order to optimize the chosen biomarker that you're trying to improve? These are incredibly powerful relationships. This is not a one-off.
It was a focused strategy that we had with these wearable companies, and we're really excited about the growth that this offers us. I just described in that circle what I was discussing. Okay. In terms of the types of testing, look, we have focused on five key clinical areas: advanced cardiometabolic health. Look, the world has moved well beyond LDL, HDL, A1C. If your physicians aren't ordering Apo B, Lp(a), insulin resistance, Omega, they should be. These are common biomarkers that provide a lot of insight. It's not, "Let's just minimize your LDL." You can have a great LDL, and if your Lp(a), which honestly is a one-and-done test, you just need to have it done once.
If your Lp(a) is elevated, I don't care what your LDL is. You have, you're at an elevated risk for carotid blocking of your, you know, having blockage of the coronary arteries, and you really need to understand that. Autoimmune disorders. There's over 100 autoimmune disorders that are out there. It's a very, very difficult disease to detect. About 15% of the U.S. population now has some type of autoimmune disorder. It's increasing, the diagnosis in 2024. It was increasing at a 7-8% rate. What we've done is we've introduced tests to the primary care physicians that allow them to better discern what type of autoimmune disorder you have so that they can refer you to the right type of specialist.
If you've known people that have autoimmune disorders, these can be two- to three-year diagnostic odysseys that end up costing a lot of money and a lot of painful side effects for patients that, you know, aren't getting the right types of treatment. Brain health, one of the things that we're most proud of is our Alzheimer's blood-based test, the AB4240 test, which discovers the protein biomarkers that come from the amyloid plaque. Quest developed, Quest implemented. We were the first lab to really offer that test commercially. We then sourced some of the tau-based tests from some of our industry partners. But the combination of looking for the biomarkers from the amyloid plaque and from the tau bundles, it's going to give you an indication of the presence of Alzheimer's long before you're going to see it in a PET/CT.
The therapeutic companies love this because it's at that point that you really want to treat that disease. These therapeutics work much better on earlier-stage disease than they do on late-stage disease. Oncology, we've talked about women's health and reproductive health. Our QNatal, QHerit genetics offering is doing great. Look, a mainstay of the company is really, we've called it our Invigorate program. We continually focus on what we call the order-to-cash model in order to make that a better patient experience, make it a better physician experience, and at the same time, continue to take cost out of that. The average rec in Quest Diagnostics is a $38 rec. You know, we try to generate about 3% variable cost productivity every year. We work this equation incredibly hard. We talk about in our PSCs improving patients served per phlebotomist, draws per FTE per day.
We're not trying to push our phlebotomists to go faster. We're taking work out of the PSC. When you make an appointment in Quest Diagnostics, I want to get your insurance information. I want to get your credit card. I want to get your license. So I don't have to ask you for that information when you come and visit us in a patient service center. Non-productive sites. We have all sorts of sophisticated software that are telling our drivers where to go, when to go. We've given our clients Uber-like capabilities to order a pickup only when they need a pickup so that I don't go there and there's no specimens. Our revenue cycle management services have been terrific, and most importantly, we've been reducing our calls per requisition. These are physician calls and patient calls into our call center.
We've deployed some really good AI tools that help patients, help physicians get the information they need. AI and automation are a mainstay in our environment today. If I look inside the four walls of our laboratory, we have two labs that are three labs that are now end-to-end automated. In other labs where we haven't deployed full-scale automation, we have these Roche front-end automation systems. It's really improved our productivity in specimen processing and sorting. We have systems that actually open up bags on paper requisitions and do all of that work. And then digital cytology, you see that picture in the middle. Pap smears are actually read today with the use of artificial intelligence. It tells the cytotechnologist where to look. It highlights what we call regions of interest. So it makes the cytotechnologist smarter. Human eyes are still being applied. Don't get worried.
But these systems, region of interest tools, are making the systems a lot smarter than they are. All sorts of deployments of AI outside of the laboratory and our customer service centers and our logistics. And most importantly, we've just rolled out some dynamic route optimization where you're not taking the same pathway to each customer every single day. The system tells you where to go and directs you where there's the least amount of traffic and the easiest pathway. M&A still remains a key growth opportunity. Over the last three years, we've deployed $2.8 billion of capital. It's deployed in those areas, 50% in regional independent labs, about 30% in health system outreach, and about 20% in capability building. Now, quite honestly, the majority of the deals are in the middle bucket.
If you take out the $1 billion we paid for LifeLabs in Canada and took that out of the $2.8 billion, the $1.8 billion is really 50% in the middle bucket. Those were the likes of Allina, OhioHealth, University Hospitals, and some large physician group, physician office labs that we acquired. We're disciplined about this. We try to ensure at least the things on the left-hand side and the left in the middle are always going to, you know, be accretive in year one and hit 10% ROIC targets after three years. For Fresenius Medical Care, we've recently taken on the laboratory testing associated with dialysis, patients that are receiving dialysis. As you know, patients that get dialysis, typically they're treated three times a week. There's a lot of laboratory testing that is done in the early part of the month, the middle month, and the end of the month.
For Cigna, it's closing down two labs. All of that work is moving into Quest Diagnostics. It'll be $100 million worth of business in 2026. Finally, from a capital deployment strategy, from 2025 to 2027, we expect to generate $4.5-$5 billion of operating cash flow. CapEx will consume $1.5-$1.7 billion. That leaves us with $3-$3.3 billion of free cash flow and we do three things with it. Number one, we're going to continue to make smart acquisitions that create value. Second, we continue to increase the dividend and the cash that is left over. We're committed to buying shares. We don't sit on a lot of cash in the company. We're reaffirming the guidance we gave at Investor Day last year, total revenue growth of 4%-5%.
We're going to be well above that this year, both on the organic side as well as the inorganic side. Operating margin improvement of 75-150 basis points. You've seen that in the first three quarters' results this year, adjusted EPS of 7%-9%, and the free cash flow consistent with what I showed on the previous page. So I know I've moved quickly, but look, we're bullish about the lab market. We expect it to remain strong. The utilization trends that you have seen, we expect to continue. Our proven strategy and innovation and scale allow us to achieve above-market returns. Our operating strategy is always designed to improve the patient experience, improve quality. When you do that, the productivity and cost savings naturally come. M&A will continue to be a large part, a portion of our strategy.
We've said one to two points of growth each year, and we're committed to the long-term outlook that we presented to you at Investor Day. So with that, Lisa, we'll turn it over to you.
Great. I think, Sam, you're going to come up and join us as well. All right. So let me start with PAMA. You didn't discuss PAMA in the presentation. I think that there's still a lot of focus. PAMA was pushed out by one month till the end of January. One, any update there? And two, is $100 million still the right way to think about it? And are there potential offsets to the $100 million?
Yeah. So I'll give the update. Sam can talk about the potential impact. So the good news last week is that there was a subcommittee on healthcare that is part of the Energy and Commerce. They met.
Our trade association president testified at that committee on the Results Act. I can tell you there was really strong bipartisan support, including all the way up to Chairman Guthrie of the overall committee. So we feel good about that. There's another committee that's part of House Ways and Means that has a subcommittee on healthcare. They too have to look at the bill, mark it up. From there, it would go over to the Senate. The Senate Finance Committee has jurisdiction over healthcare. You get congruence between the House and the Senate. Still remaining, though, is CMS has to do a technical assessment, a technical feasibility. Can they implement this Results Act? And then CBO has to score it. So what I would say is that's a lot of work to get done in 18 days, okay? I'm optimistic that the Results Act will get passed in 2026.
I'm not highly optimistic that it'll get passed by January 30th. We were given a one-month delay. To get that one-month delay required both the executive branch and the legislative branch to agree to do it. So I do think as long as the Results Act is making progress, we're a strong believer and we're optimistic, highly optimistic that we'll continue to get a delay while the bill is going through the process.
Yeah. And you know, we're optimistic that we're going to get the delay, but you always plan for, you know, potential.
Whichever I did then.
Worst case. And if PAMA were to come back, as you said, it's a $90-$100 million impact this year.
We do have actions in mind that we've been planning for, Lisa, in terms of, you know, some cost reductions around open positions that we continue to keep open, look at the support functions and reduce some of the, you know, infrastructure and people that we, you know, have there in case the cuts come back. You know, we've got discretionary investments every year that we start out the year with towards our R&D and investments behind some products, you know, not things that are absolutely critical, but things that are more discretionary that we will, you know, roll back in case PAMA comes back. But again, I want to emphasize we are optimistic that we will see a delay this year.
Delay or also passing of results?
Well, results passing this year, but I think, you know.
Before that, there's probably going to need to be a delay of PAMA.
Okay. That makes sense. So I, you know, we only have about nine minutes left together. So I really want to hone in on a couple of things. The first would be, I know it's a smaller piece of the business, but it has grown incredibly fast, and you seem to be very passionate about the consumer side of the business. And you talked about, you know, that going from, you know, roughly $30 million to $250 million in a four-year period of time. When I think about that over the next several years, how big do you think that business can be?
Yeah. Look, I think our own direct channel grew in the 30%-35% range in 2025.
You know, so let's think that these things are going to grow, continue to grow at 20% plus. There's, you know, we're working exclusively with Whoop and Oura. There's other wearables companies, you know, and other, like Garmin. So there's lots of other wearable companies out there that are thinking along the same lines. Function Health is doing incredibly well. Their repeat, you know, it's an annual subscription, and they've published numbers that say about 65-68% of the people are renewing the subscription. So their growth model appears to be sustainable. So look, we feel great about that. It's part of the mission of the company. As I mentioned, two-thirds of our business is really focused on sick care. The only way to get out of sick care as a country is to spend more time, more money on general health and wellness and prevention testing.
It feels that this administration, and I think many of you will see Dr. Oz as a keynote tomorrow, is really focused on that, right? Whether it's MAHA or, you know, it's some of the initiatives that Dr. Oz has talked about. Do you feel any confidence that this administration could do something around encouraging more preventive rather than?
Yeah, I really do. Look, I think they've sent the right signal to the wearables companies, right? You know, Will from Whoop, I was with him last week. You know, the FDA, you know, is looking at these wearables, and I think they're looking at it more favorably now. Look, it's a fiscal imperative, right? We spend more as a country on healthcare than any other country in the world.
I mentioned the $5 trillion mark we surpassed in 2024, and yet our outcomes, right, are like 33, okay, when you rank the country. So something's not working. And it's not that the healthcare system is broken, okay? The healthcare system isn't broken. The healthcare system works pretty good. I think the human condition is broken, quite honestly, okay? You know, if you go back 40 years, the average American consumed 2,200 calories. Today, we consume 3,600 calories. The quality of those calories is less. We're getting less exercise. So what do you think was going to happen over 40 years? Of course, it puts an incredible strain on the healthcare system. And what do we do? As a society, as a med tech industry, we've developed better and better ways of keeping chronic care patients alive longer.
That's where the real innovation in therapeutics and med devices has come, not on prevention and wellness, so I do think this administration is doing the right things and saying the right things. The only way to get out of this healthcare spend is to get in front of it.
You know, one of the things you've highlighted the last few quarters is the elevated test prerequisite, you know, as a large contributor to the organic growth rate, and when we think about that, you know, baseline versus pre-pandemic, what we're seeing in the marketplace today, do you see yourselves better positioned for margin expansion as this continues to give you a healthy contribution to margin as you see incremental tests? Maybe just talk a little bit about that from an incremental margin perspective.
Yeah. I mean, facts first, right?
So if we look back to 2019, pre-pandemic, our tests per requisition, we're sitting somewhere in the high threes, 3.8, 3.7. Now we see for every requisition a tests per req of about 4.3, 4.4. So we've basically grown that requisition, what we call the density of that requisition, by almost half a test. And you know, the reason for that is not really surprising. It's things like more availability of screening. There's more advanced tests out there. If you look now, if you have potentially risk factors for dementia, you have an AD-Detect test that you can take, which is a blood-based test because there's therapy as well. So now you can detect, you know, early onset dementia sooner, and you can get some therapy.
To your question about margin, absolutely it helps our margin, you know, because the cost to perform a requisition is not going to go up, you know, commensurate with the number of tests. You've got a lot of fixed costs that are already covered. So you get a higher contribution margin off that requisition.
You highlighted, you know, your long-term goal or guidance around 75 to 150 basis point expansion on the margin, and you've started to add to that in 2025. Anything that you would highlight going into 2026 as we think about margins?
Yeah. So maybe talk about some of the puts and takes, right? So, you know, we're seeing some really healthy utilization, and that's expected to continue. So the momentum on that is really positive. We're seeing great performance in our consumer business, and, you know, we expect that to continue as well.
We talked about revenue per requisition. We continue to see momentum there. Advanced diagnostics, you know, helping in terms of the mix of our business. We expect to see that. So all of those, I think, are really good tailwinds. Now, on the flip side, I think as you think about margins, you know, obviously PAMA is one offset, but as I said, and as we said earlier, we are optimistic that we're not going to see PAMA come back in 2026. You know, we've got expenses. I mean, Jim detailed in his summary around order to cash. We've got one of the big initiatives is a project called Nova, which is modernizing our entire order to cash infrastructure. And that's going to have costs with it in 2026. That's an offset from a margin perspective.
So I would say, obviously, we'll give more details on February 10th when we announce our Q4 earnings, but those are some of the, I think, the puts and takes that you have to consider.
And you highlighted utilization and continued strong utilization. I'm not sure if you had a chance to see the ACA numbers today, which were somewhat surprising. For those of you that didn't see it, it looks like it's only down about 4%. Yeah. I think originally when you had talked in the fall, you talked about maybe a 30 basis point headwind, is that right?
Yes.
What were you anticipating as far as the level of membership decline in the ACA?
Yeah. So let me talk a little bit about the assumptions behind that, right? So first of all, you know, the ACA enrollment and that business is about 4% of our overall business.
That was the starting point in terms of assessing that impact. We think over a period of 10 years of that 23 million people that are enrolled in exchanges, a third of them will basically get off the exchanges. That's going to be a glide path, right? It's not all going to happen one year. When we looked at that and we looked at external indicators in terms of, you know, what the utilization is for those individuals that we expect to start to disenroll, so to speak, we sized it at about a 30 basis point. There was a lot of, you know, assumptions that we made. We are very comfortable that 30 basis points is the right assumption. Now, you know, again, that's the expectation for 2026.
What we saw today, I think, was surprising in that it's not as significant as what we expected. Well, we could see people disenroll, right? I mean, I think that there could be people that thought, hey, the subsidies are going to come back, right? Yeah. We have to see how many people pay that first month premium. Right, right. Exactly. So there's still time, you know, to assess that, and I think we need to see more data. But the 30 basis points, I think we're still comfortable that that's the right assumption.
You know, one of the other big themes is obviously artificial intelligence. You touched on it in your presentation today, and you talked about it from both sides. Which do you think has the bigger opportunity when we think about the labs?
I think there's, you know, tremendous opportunity within the four walls of the laboratory, you know, in the areas of microbiology and hematology. You know, we're not looking at things under microscopes anymore. There's digital pictures taken of these things. The systems characterize negatives versus positives. They count colonies. So things like that. Anytime you see a microscope in a lab, you have to ask yourself, why can't I digitize what they're looking at? And if I digitize what they're looking at, I can now apply a set of algorithms that assist or aid in interpreting that, okay? So still plenty of opportunity there. Look, we're also excited outside the laboratory. If you have the MyQuest application on your phone and you're viewing your results, what we know today is people are taking their lab results and exporting those into ChatGPT or some other type of Gemini-based.
So we're going to give you the capability very soon. When you get your results, you can chat with your results. It'll be based on a proprietary engine that we've developed. And look, we're not trying to replace the medical doctor, right? We're trying to create a more educated patient that can have more educated conversations with their physician. And we believe that will really help. So there's plenty of tools that we're going to give consumers and physicians. Physicians as well, right? Many times physicians are just looking at lab data for that one point in time. They don't always go back and look at the trends, the three-year trend, the five-year trend. It's not just that individual point. It's the velocity.
It's the rate of change of certain tests like PSA, where you really start to then you're able to then predict outcomes two years later, three years later. These are the kinds of tools that physicians need, you know, to serve their patients. And I think the patient has to take ownership of that information, right? Like to, I think. Well, and that's what you're seeing in the consumer health area, right? They're taking ownership of their body. They're deterring, you know, look, the social media world, we're bombarded today with the Peter Attias, the Rich Rolls, the Hubermans, the Dr. Mark Hymans. And when these people are out there and they do these podcasts and they do something on cardiovascular, on Apo B and Lp(a), we look the next day and, you know, you see a surge in orders of Lp(a) and Lp(a).
But you know that's going to be all over my Instagram now, right?
Well, that's great. We think you need a Whoop or a ring.
All right. With that, we're out of time. Thank you, everybody, for joining us this afternoon, and thank you for the discussion.
Thank you.
Thank you, guys. Thank you very much. That was great.