Pito Chickering: Got it, and sorry, two quick follow-ups. You talked about phlebotomists. Just curious where the phlebotomist hourly wage is today and if you think is the right level to compete against retail channels. The second one is the public lab supply companies have been talking about pricing for a while. Just curious as one of the largest labs in the U.S., what you assume for supply inflation for ’23, or can you offset that inflation simply by changing vendors and/or leveraging your scale?
Jim Davis: Yes, so our phlebotomy rates vary by region of the country. What I would tell you is our increase in wages for phlebotomy were certainly in line with the 3% to 4% wage impact that we saw last year. It’s what we’re planning for 2023, and as I indicated, our retention has improved. Our attrition has certainly stabilized and declined, so we feel good about that.
Pito Chickering: Then on the supply inflation, just curious–?
Jim Davis: Yes, I’m sorry, the supply inflation. Again, 70% of what we purchase each year is under contract. When those contracts come up, they generally represent an opportunity for deflation, meaning we’re going to run a competition between the vendors and we look for improvements from a cost, quality and turnaround time perspective. Where the inflation hit us in 2022 is really on some of the non-supplies, the reagents and things like that. Some of that could have been pre-analytical supplies, masks, gowns, things like that, as well as just the normal inflation that you all see in your businesses, which could be hotels, air travel and things like that. Now again, we think that’s softening here as we get into 2023, and we certainly put guardrails on travel and living expenses and things like that.
Pito Chickering: Great, thanks so much.
Operator: The next question is from Brian Tanquilut with Jefferies. Your line is now open.
Brian Tanquilut: Hey, good morning guys. Jim, just a quick question on rates from payors. I think in the past, you’ve expressed some optimism in seeing a little bit of rate improvement in the commercial side. But I think in your prepared remarks, you called out a little bit of reimbursement pressure at 60 basis points or so, so just curious how do we reconcile that, and maybe just broadly speaking what you’re seeing in terms of payor receptivity to increasing rates on the reimbursement front. Thanks.
Jim Davis: Yes, I think we said in the prepared remarks that our pricing was down about 50 basis points, which actually represents the best that I’ve seen in my time with Quest Diagnostics, so we feel good about that. We’ve also said that as we renegotiate new contracts, and every one of these contracts is four to five years in length so you can expect that 20% to 25% will renew this year, which they will, and the preponderance of those contracts we’ve seen rate increases at a minimum rate–you know, holding rate flat to prior contracts, so we view that as a very positive. What we’ve also said is, look – we’ve got a $35 million to $40 million rate increase through Medicare draw fee increases, and today we get reimbursed on roughly 25% of the commercial draws that we do.
We’re going to push hard not only to expand that 25% but those that do reimburse us to take those rates up as well, so we are pushing hard at every turn to increase prices across this business. The last thing I’d say is, look, there’s a portfolio of $700 million to $800 million of other businesses in Quest Diagnostics – that can be our Exam One business, our employer solutions business, our employee population health business, and we’ve pushed for 2% to 3% price increases on that portfolio of business and we’ve largely gotten those in place for 2023. Again, this is the most optimistic price outlook that we’ve put forward since I joined Quest in 2013.
Sam Samad: Yes, maybe just to put a couple of points of emphasis around it, in the prepared remarks we talked about a price impact in Q4 of roughly 50 basis points year-over-year of price headwind. As we look towards 2023, what’s reflected in our guidance right now is actually a positive price impact year-over-year, and obviously that’s benefited from the reimbursement of the specimen collection fee. It’s definitely a positive. We’ve managed to really make some good progress in terms of our pricing.
Jim Davis: The other thing I want to mention is we’ve talked about these value-based contracts, and over 30% of our health plan contracts have some type of incentive for us to earn additional value, which we actually don’t put into the price equation, but it’s really good payor mix. These incentives could be based on share of spend with Quest Diagnostics, it could be based on leakage, it could be based on the movement of requisitions from high priced hospital labs into laboratories like Quest Diagnostics, so those value-based incentives are an important part of our business, and as we succeed in achieving that value for the health plans, there’s rewards that come back to us.
Shawn Bevec: Brian, this is Shawn. Just one last thing I wanted to add. Most of the price impact that we saw in 2022 was largely driven by some of the client bill, largely with the hospitals. The health plan book was actually pretty good, pretty stable, so.
Brian Tanquilut: Got it. Very helpful, thank you.
Operator: The next question is from Kevin Caliendo with UBS. Your line is open.
