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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2024
or
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission file number - 1-11353
LABCORP HOLDINGS INC.
(Exact name of registrant as specified in its charter)
358 South Main Street
Burlington , North Carolina 27215
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code) 336-229-1127
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Stock, $0.10 par value LH New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 28, 2024, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter was was approximately $16.4 billion.
As of February 24, 2025, there were 83.7 million shares of the registrant’s common stock, $0.10 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Notice of Annual Meeting and Proxy Statement to be filed no later than 120 days following December 31, 2024, are incorporated by reference into Part III.
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TABLE OF CONTENTS
Page
Part I
Item 1. Business 7
Item 1A. Risk Factors 29
Item 1B. Unresolved Staff Comments 43
Item 1C. Cybersecurity 43
Item 2. Properties 45
Item 3. Legal Proceedings 46
Item 4. Mine Safety Disclosures 46
Part II
Item 6. [Reserved] 49
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 58
Item 8. Financial Statements and Supplementary Data 59
Item 9A. Controls and Procedures 59
Item 9B. Other Information 61
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 61
Part III
Item 10. Directors, Executive Officers and Corporate Governance 62
Item 11. Executive Compensation 62
Item 14. Principal Accountant Fees and Services 62
Part IV
Item 15. Exhibits and Financial Statement Schedules 63
Signatures 68
Index to Consolidated Financial Statements F-1
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FORWARD-LOOKING STATEMENTS
In this Annual Report on Form 10-K (Annual Report), Labcorp® Holdings Inc. together with its subsidiaries (Labcorp or the Company), has made, and from time to time may otherwise make in its public filings, press releases and discussions by Company management, forward-looking statements concerning the Company’s operations, performance and financial condition, as well as its strategic objectives. Some of these forward-looking statements relate to future events and expectations and can be identified by the use of forward-looking words such as “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, or “anticipates” or the negative of those words or other comparable terminology. Such forward-looking statements speak only as of the time they are made and are subject to various risks and uncertainties and the Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those currently anticipated due to a number of factors in addition to those discussed elsewhere herein, including in the “Risk Factors” section of this Annual Report, and in the Company’s other public filings, press releases, and discussions with Company management, including:
1.changes in government and third-party payer regulations, reimbursement, or coverage policies or other future reforms in the United States (U.S.) healthcare system (or in the interpretation of current regulations), new insurance or payment systems, including state, regional or private insurance cooperatives (e.g., health insurance exchanges) affecting governmental and third-party coverage or reimbursement for commercial laboratory testing, including the impact of the U.S. Protecting Access to Medicare Act of 2014;
2.significant monetary damages, fines, penalties, assessments, refunds, repayments, damage to the Company’s reputation, unanticipated compliance expenditures, and/or exclusion or debarment from or ineligibility to participate in government programs, among other adverse consequences, arising from enforcement of anti-fraud and abuse laws and other laws applicable to the Company in jurisdictions in which the Company conducts business;
3.significant fines, penalties, costs, unanticipated compliance expenditures, and/or damage to the Company’s reputation arising from the failure to comply with applicable privacy and security laws and regulations, including the U.S. Health Insurance Portability and Accountability Act of 1996, the U.S. Health Information Technology for Economic and Clinical Health Act, the European Union’s General Data Protection Regulation, and similar laws and regulations in jurisdictions in which the Company conducts business;
4.loss or suspension of a license or imposition of fines or penalties under, or future changes in, or interpretations of applicable licensing laws or regulations regarding the operation of clinical laboratories, the development and commercialization of laboratory-developed tests (LDTs), and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967, the U.S. Clinical Laboratory Improvement Amendments of 1988, the European Union In Vitro Diagnostics Regulation, and similar laws and regulations in jurisdictions in which the Company conducts business;
5.penalties or loss of license arising from the failure to comply with applicable occupational and workplace safety laws and regulations, including the U.S. Occupational Safety and Health Administration requirements, the U.S. Needlestick Safety and Prevention Act, and similar laws and regulations in jurisdictions in which the Company conducts business;
6.fines, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, damage to the Company’s reputation, injunctions, or criminal prosecution arising from failure to maintain compliance with current good manufacturing practice regulations and similar requirements of various regulatory agencies in jurisdictions in which the Company conducts business;
7.sanctions or other remedies, including fines, unanticipated compliance expenditures, enforcement actions, injunctions or criminal prosecution arising from failure to comply with the Animal Welfare Act or applicable national, state, and local laws and regulations in jurisdictions in which the Company conducts business;
8.changes in testing guidelines or recommendations by government agencies, medical specialty societies, and other authoritative bodies affecting the development, validation, approval, clearance, commercialization, or utilization of laboratory tests;
9.changes in and failure to comply with the applicable regulations of pharmaceutical and medical device regulators affecting the approval, availability of, and the selling and marketing of diagnostic tests including LDTs, drug development, or the conduct of drug development and medical device and diagnostic studies and trials, including regulations and policies of the U.S. Food and Drug Administration (FDA), the U.S. Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the United Kingdom, the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Union, the European Medicines Agency, and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;
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10.changes in government regulations or reimbursement pertaining to the pharmaceutical, biotechnology and medical device and diagnostic industries, changes in reimbursement of pharmaceutical products, or reduced spending on research and development by pharmaceutical, biotechnology and medical device, and diagnostic customers;
11.liabilities that result from the failure to comply with corporate governance requirements;
12.increased competition, including price competition, potential reduction in rates in response to price transparency initiatives and consumerism, competitive bidding and/or changes or reductions to fee schedules, and competition from companies that do not comply with existing applicable laws or regulations or otherwise disregard compliance standards in the industry;
13.changes in payer mix or payment structure or process, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of clearinghouses on the claims reimbursement process, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing, or testing methodologies;
14.failure to retain or attract business from managed care organizations (MCOs) as a result of changes in business models, including risk based or network approaches, out-sourced laboratory network management or utilization management companies, or other changes in strategy or business models by MCOs;
15.failure to obtain and retain new customers, an unfavorable change in the mix of testing services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and delays in payments from customers;
16.consolidation and convergence of customers, competitors, and suppliers, potentially causing material shifts in insourcing, utilization, pricing, reimbursement, and supply chain access;
17.failure to invest in or effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market, business, and customer trends and needs;
18.customers choosing to insource services that are or could be purchased from the Company;
19.failure to identify, successfully close, and effectively integrate and/or manage acquisitions of new businesses or failure to maintain key customers and/or employees as a result of uncertainty surrounding the integration of acquisitions;
20.inability to achieve the expected benefits and synergies of newly acquired businesses, including due to items not discovered in the due diligence process, and the impact on the Company’s cash position, levels of indebtedness, and stock price;
21.termination, loss, delay, reduction in scope, or increased costs of contracts, including large contracts and multiple contracts;
22.liability arising from errors or omissions in the performance of testing and other services or other contractual arrangements;
23.changes or disruption in the provision or transportation of services or supplies provided by third parties; or their termination for failure to follow the Company’s performance standards and requirements;
24.damage or disruption to the Company’s facilities;
25.damage to the Company’s reputation, loss of business, or other harm from acts of animal rights activists or potential harm and/or liability arising from animal research activities;
26.adverse results in litigation matters;
27.inability to attract, retain, and develop experienced and qualified personnel or the loss of significant personnel as a result of illness, increased competition for talent, wage growth, or other market factors beyond the Company’s control;
28.failure to develop or acquire licenses for new or improved technologies, such as point-of-care testing, mobile health technologies, and digital pathology, or potential use of new technologies by customers and/or consumers to perform their own tests;
29.substantial costs arising from the inability to commercialize newly licensed tests or technologies or to obtain appropriate coverage or reimbursement for such tests;
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30.failure to obtain, maintain, and enforce intellectual property rights for protection of the Company's offerings and defend against challenges to those rights;
31.scope, validity, and enforceability of patents and other proprietary rights held by third parties that may impact the Company's ability to develop, perform, or market the Company's offerings or operate its business;
32.business interruption, receivables impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions or inventory obsolescence, increases in material cost or other operating costs, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes; geopolitical crises, including terrorism and war; public health crises and disease epidemics and pandemics, including but not limited to the continued impact of COVID-19; and other events beyond the Company's control;
33.discontinuation or recalls of existing products used in the performance of testing;
34.a failure in the Company's information technology systems, including with respect to testing turnaround time and billing processes, the failure of the Company or its third-party suppliers and vendors to maintain the security of business information or systems or to protect against cybersecurity incidents such as denial of service attacks, malware, ransomware, and computer viruses, delays or failures in the development and implementation of the Company’s automation platforms, or adverse effects from the use of or regulation of artificial intelligence (AI) and machine learning tools, any of which could result in a negative effect on the Company’s performance of services, a loss of business or increased costs, delays in cash collections, damages to the Company’s reputation, significant litigation exposure, an inability to meet required financial reporting deadlines, or the failure to meet future regulatory or customer information technology, data security, and connectivity requirements;
35.business interruption, increased costs, and other adverse effects on the Company's operations due to the unionization of employees, union strikes, work stoppages, general labor unrest, or failure to comply with labor or employment laws;
36.failure to maintain the Company's days sales outstanding levels, cash collections (in light of increasing levels of patient responsibility), profitability and/or reimbursement arising from unfavorable changes in third-party payer policies, payment delays introduced by third-party utilization management organizations, and increasing levels of patient payment responsibility;
37.impact on the Company’s revenues, cash collections, and the availability of credit for general liquidity or other financing needs arising from a significant deterioration in the economy or financial markets or in the Company’s credit ratings by Standard & Poor’s and/or Moody’s;
38.failure to maintain the expected capital structure for the Company, including failure to maintain the Company’s investment grade rating, or leverage ratio covenants under its revolving credit facility;
39.changes in reimbursement by foreign governments and foreign currency fluctuations;
40.inability to obtain certain billing information from physicians, resulting in increased costs and complexity, a temporary disruption in receipts, and ongoing reductions in reimbursements and revenues;
41.expenses and risks associated with international operations, including, but not limited to, compliance with the U.S. Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act, other applicable anti-corruption laws and regulations, trade sanction laws and regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions;
42.failure to achieve expected efficiencies, benefits, and savings in connection with the Company’s business process improvement initiatives;
43.changes in tax laws and regulations or changes in their interpretation;
44.changing global economic conditions and government and regulatory changes; and
45.risks associated with the impacts and expected benefits and costs of the completed spin-off of Fortrea Holdings Inc. (Spin-off), including, but not limited to, factors that could adversely affect the Company’s ability to realize the expected benefits of the Spin-off, the failure of the Spin-off to qualify as a tax-free transaction for U.S. federal income tax purposes.
Except as may be required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Given these uncertainties, one should not put undue reliance on any forward-looking statements.
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PART I
Item 1. BUSINESS
Labcorp® Holdings Inc. (Labcorp or the Company) is a global leader of innovative and comprehensive laboratory services that provides vital information to help doctors, hospitals, pharmaceutical companies, researchers, and patients make clear and confident decisions. By leveraging its unparalleled diagnostics and drug development capabilities, the Company provides insights and accelerates innovations to improve health and improve lives. The Company’s nearly 70,000 employees serve clients in approximately 100 countries, provided support for more than 75% of the new drugs and therapeutic products approved in 2024 by the FDA, and performed more than 700 million tests annually for patients around the world.
On April 25, 2024, Laboratory Corporation of America Holdings (LCAH) announced plans to implement a new public holding company structure, with Labcorp Holdings Inc. as the holding company. On May 17, 2024, the Company completed the holding company reorganization (Reorganization) and became the successor issuer to LCAH. Labcorp Holdings Inc. has no independent assets or operations and its sole ownership interest is in LCAH.
The Company is organized under two segments, consisting of Diagnostics Laboratories (Dx), which includes routine testing and specialty/esoteric testing, and Biopharma Laboratory Services (BLS), consisting of Early Development Research Laboratories (ED) and Central Laboratory Services. The Company’s strength in science, technology, and innovation, as well as its global scale, enable it to play a leading role in advancing healthcare across the globe.
The significant reach, breadth, and advancement of the Company’s offerings have resulted in Base Business revenue growth of 4.9% from 2023 through 2024 and 7.4% versus 2019 compound annual growth rate (CAGR). Base Business includes the Company’s business operations except for COVID-19 PCR testing (COVID-19 Testing).
For the year ended December 31, 2024, the Company generated revenues of $13,008.9 million, diluted earnings per share from continuing operations of $8.84, and had a total operating cash flow provided by continuing operations of $1,585.8 million.
The Company believes that science, technology, and innovation drive its continued success, differentiate the Company, and are foundational to its future. They are critical to the Company’s ability to carry out its mission to improve health and improve lives.
Spin-off of Fortrea Holdings Inc.
On June 30, 2023, the Company completed the previously announced separation (Spin-off) of its former clinical development and commercialization services (CDCS) business, Fortrea Holdings Inc. (Fortrea), through the Company’s pro-rata distribution of 100% of the outstanding shares of Fortrea common stock to holders of record of Labcorp common stock (Common Stock). Each holder of record of Common Stock received one share of Fortrea common stock for every share of Common Stock.
Upon closing of the Spin-off, Fortrea made a cash distribution to the Company of approximately $1,600.0 million. In 2023, these proceeds were mainly used to repurchase approximately $1,000.0 million in the aggregate of Common Stock pursuant to accelerated share repurchase agreements and paying down $300.0 million of debt that matured in 2023. The remaining funds were used in 2024 to support continued programs to return value to shareholders, through cash dividends and/or share repurchases.
As a result of the Spin-off, all current and historical operating results of Fortrea are presented as Earnings from discontinued operations, net of tax, in the Consolidated Statements of Operations and the Company has recast its BLS segment results to exclude the historical results of the CDCS business for all periods presented.
Enterprise Strategy
Through leadership in science, technology and innovation, the Company provides vital information and services to help its customers make clear and confident health decisions and helps millions of people improve health and improve lives.
The Company is expanding its role in the rapidly evolving healthcare market by strengthening its positions across its portfolio of capabilities, growing strategic opportunities that drive new business, and differentiating its unique offerings, capabilities, and financial performance. The Company is focused on two near-term strategic opportunities for growth across both Dx and BLS:
1.Be the Partner of Choice for Health Systems and Local and Regional Laboratories
The Company expects industry consolidation to continue, as hospitals and health systems focus on investing in core patient care services. The depth and the breadth of opportunity and the quality of the pipeline is robust, and the Company is optimistic
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about continued expansion. The Company seeks partnerships that meet financial criteria, including being accretive in the first year, returning each transaction’s cost of capital within three years, and providing a clear path to improve margins.
The Company signed or completed 10 collaboration transactions with health systems and local and regional laboratories in 2024. The Company believes it is an attractive partner for hospitals and health systems for multiple reasons, including its:
•innovative offerings in high growth specialty areas;
•industry-leading test portfolio and national presence;
•unique data and analytics capabilities; and
•ability to integrate a hospital’s laboratory services seamlessly.
2.Lead in the Development, Licensing, and Scaling of Specialty Testing
The Company is focused on four primary specialty testing areas: oncology, women's health, autoimmune disease, and neurology, which the Company believes represent significant growth areas. The development of specialty tests and companion diagnostics (CDx) are attractive to health systems partners and biopharma as they continue to develop more products in specialty areas and cell and gene therapy. The Company has demonstrated its ability to provide comprehensive portfolios in these four areas, which comprise more than half of clinical trials conducted in its Central Laboratory Services business.
Longer-term, the Company is focused on three enterprise-wide strategic priorities to drive growth:
1.Establish leadership and partnership capabilities in cell and gene therapy
Cell and gene therapy is a growing focus of biopharma pipelines, with approximately 2,000 clinical trials being conducted globally and representing approximately 20% of all biopharma drug pipelines. The Company expects the cell and gene therapy market to grow at a substantially higher rate than other types of therapies over the next five years. As cell and gene therapies expand, the Company has an opportunity to leverage its strong drug development capabilities, scientific expertise, and pharma relationships to become a development lab of choice. Longer-term as these therapies develop, the Company believes it can harness its diagnostic assets to support biopharma in commercializing cell and gene therapies and scaling these therapies through its hospital and health system business over time.
2.Expand Consumer-centric Capabilities
Consumerism trends, such as greater choice, convenience, and transparency, continue to have a growing influence across the healthcare landscape and present new opportunities for growth. Through its core customer groups, the Company has approximately 175 million patient encounters per year and has invested in modern capabilities to digitize and improve the patient journey across patient service centers. Through the Labcorp OnDemandTM channel, the Company has also demonstrated its ability to connect with consumers directly and is now offering 75 health and wellness tests through Labcorp OnDemand. Across its core businesses, the Company has an opportunity to make strategic investments to continue to enhance the customer experience through its patient portal, patient service center network, and other consumer-focused initiatives, and to capitalize on select direct revenue streams that require elevated consumer capabilities. The Company’s scaled operations, trusted brand, scientific leadership, and broad customer base are key differentiators that will support its efforts to expand over time to meet the evolving needs of its customer groups.
3.Expand Global Reach, Including Through Companion Diagnostics
International expansion of specialized diagnostics remains a key opportunity for future growth as the Company continues to add to its pipeline of specialty diagnostics. The Company is already a key partner to biopharma in CDx. As its pipeline of specialty diagnostics grows, the Company will seek to leverage its scientific leadership in new markets through a differentiated set of capabilities, including:
•a global central laboratory footprint;
•innovative science and technology;
•a comprehensive and competitive testing portfolio; and
•deep customer relationships in diagnostics and biopharma laboratory services.
As CDx continues to become more important for serving customers across the enterprise, the Company has a unique set of capabilities to be an end-to-end partner to biopharma and will continue to expand these capabilities to fuel further targeted growth internationally.
Capital Allocation
The Company believes it has a strong track record of deploying capital to investments that enhance the Company’s business and return capital to shareholders.
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During 2024, the Company invested $839.0 million in strategic business acquisitions. The acquisitions have enhanced the Company’s service offerings, expanded its customer and revenue mix, and strengthened and broadened the scope of its geographic presence. The Company continues to evaluate acquisition opportunities that leverage the Company’s core competencies, complement existing scientific and technological capabilities, increase the Company’s presence in key geographic, therapeutic and strategic areas, and meet or exceed the Company’s financial criteria.
During 2024, the Company repurchased 1.1 million shares of Common Stock at an average price of $219.57 per share for a total cost of $250.1 million and paid dividends of $243.1 million. At the end of 2024, the Company had outstanding authorization from its Board of Directors (Board) to purchase up to $1,280.4 million maximum value of Common Stock.
During 2024, capital expenditures were $489.9 million, or 3.8% of the Company’s revenues. The Company expects this level of spending to remain consistent in 2025, primarily in connection with projects to support growth in the Company’s core businesses, facility expansion and updates, projects related to its LaunchPad initiative, and further acquisition integration initiatives.
The Company will continue to evaluate opportunities for strategic deployment of capital in light of market conditions.
Seasonality and External Factors
The Company experiences seasonality across its business. For example, testing volume generally declines during the year-end holiday period and other major holidays and can also decline due to inclement weather or natural disasters. Testing volumes can also be impacted by changes in the global economy, exchange rate fluctuations, political and regulatory changes, the progress of ongoing studies and the startup of new studies, as well as the level of expenditures made by the pharmaceutical, biotechnology and medical device industries in research and design (R&D). Declines in testing volume reduce revenues, operating margins, and cash flows.
In 2024, approximately 13.7% of the Company’s revenues were billed in currencies other than the U.S. dollar, with the Swiss franc, British pound, Canadian dollar, and the euro representing the largest components of its currency exposure.
Given the seasonality and changing economic factors impacting the business, comparison of the results for successive quarters may not accurately reflect trends or results for the full year.
Company Reporting
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are made available free of charge through the Investor Relations section of the Company’s website at www.labcorp.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). Additionally, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC.
The matters discussed in this “Business” section should be read in conjunction with the Consolidated Financial Statements found in Item 8 of Part II of this Annual Report, which include additional financial information about the Company. This Annual Report includes forward-looking statements that involve risks or uncertainties. The Company’s results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risk factors described in Item 1A of Part I of this Annual Report and elsewhere. For more information about forward-looking statements, see “Forward-Looking Statements” included prior to Part I in this Annual Report.
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The Company’s Business
For the year ended December 31, 2024, the Company’s revenues were $13,008.9 million, an increase of 7.0% from $12,161.6 million in 2023. The 7.0% increase in revenues for the year ended December 31, 2024, as compared to the corresponding period in 2023, was primarily due to organic revenue of 3.9%, acquisitions, net of divestitures of 2.8%, and favorable foreign currency translation of 0.2%. The 3.9% increase in organic revenue was due to a 4.9% increase in the Company’s organic Base Business, partially offset by an 1.0% decrease in COVID-19 Testing.
In Millions, Except Per Share Data Year Ended December 31,
Net earnings attributable to Labcorp Holdings Inc. $ 746.0 $ 418.0
Cash flows provided by continuing operating activities $ 1,585.8 $ 1,202.3
Basic earnings per common share from continuing operations $ 8.89 $ 4.35
Diluted earnings per common share from continuing operations $ 8.84 $ 4.33
The Company reports its business in two segments, Dx and BLS. In 2024, Dx and BLS contributed 78% and 22%, respectively, of revenues to the Company, and in 2023 contributed 77% and 23%, respectively. Nearly all of Dx’s revenues are generated in the U.S., with a smaller portion in Canada and a relatively small amount in the rest of the world. BLS’s revenues are nearly evenly split between the U.S. and the rest of the world, with approximately 41% derived from the U.S. and approximately 59% from other countries. Although this allocation of revenues provides some protection from economic shifts in any one country, it is still heavily tilted towards the U.S. As a result, to further diversify its operations, the Company may explore select business opportunities outside the U.S. The Company’s revenues by segment payers/customer groups and by geography for the years ended December 31, 2024 and 2023 are as follows:
North America Europe Other Total North America Europe Other Total
Payer/Customer
Dx
Clients 24 % — % — % 24 % 24 % — % — % 24 %
Patients 10 % — % — % 10 % 9 % — % — % 9 %
Medicare and Medicaid 8 % — % — % 8 % 8 % — % — % 8 %
Third party 36 % — % — % 36 % 36 % — % — % 36 %
Total Dx revenues by payer 78 % — % — % 78 % 77 % — % — % 77 %
BLS
Diagnostics Laboratories Segment
During 2024, the Dx segment generated $10,144.3 million in revenues and $1,606.3 million in segment operating income, resulting in an operating margin of 15.8%.
In Millions Year Ended December 31,
Dx offers a comprehensive menu of frequently requested core testing and specialty testing through an integrated network of primary and specialty laboratories across the U.S. and Canada. This network is supported by a sophisticated information technology system, with more than 80,000 electronic interfaces to deliver test results, nimble and efficient logistics, and local labs offering rapid response testing.
Dx also provides patient access points that are strategically and conveniently located throughout the U.S., including more than 2,200 patient service centers (PSCs) and more than 6,800 in-office phlebotomists located in customer offices and facilities.
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Although testing for healthcare purposes and customers who provide healthcare services represents the most significant portion of the clinical laboratory industry, clinical laboratories also perform testing for other purposes and customers, including employment and occupational testing, deoxyribonucleic acid testing to determine parentage and to assist in immigration eligibility determinations, environmental testing, wellness testing, toxicology testing, pain management testing, and medical drug monitoring. Dx offers an expansive test menu that includes a wide range of clinical, anatomic pathology, genetic and genomic tests, and regularly adds new tests and improves the methodology of existing tests to enhance patient care. Dx also offers more than 75 consumer-initiated wellness tests available online through its Labcorp OnDemand platform.
As part of an ongoing commitment to be an efficient and high-value provider of laboratory services, Dx implemented and has maintained a comprehensive business process improvement initiative known as LaunchPad. The initiative was designed to reengineer the Company’s systems and processes to create a sustainable and more efficient business model, and to improve the experience of all stakeholders.
The Dx business can be categorized into the following components:
Service Key Features
Effect of U.S. Market Changes on the Clinical Laboratory Business
The delivery of, and reimbursement for, healthcare continues to change in the U.S., impacting all stakeholders, including the clinical laboratory business. Medicare (which principally serves patients who are 65 and older), Medicaid (which principally serves low-income patients), and insurers have increased their efforts to control the cost, utilization, and delivery of healthcare services. Measures to regulate healthcare delivery in general and clinical laboratories in particular have resulted in reduced prices, added costs, increased coverage denials and claims edits, and decreased test utilization for the clinical laboratory
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industry by imposing new, increasingly complex regulatory and administrative requirements. The government also has continued to adjust the Medicare and Medicaid fee schedules at the national and local level, and the Company believes that pressure to reduce government reimbursement will continue.
Fees for most laboratory services reimbursed by Medicare are established in the Clinical Laboratory Fee Schedule (CLFS) and fees for other testing reimbursed by Medicare, primarily related to pathology, are covered by the Physician Fee Schedule (PFS). During 2024, approximately 8.8% of Dx’s revenue was reimbursed under the CLFS (8.8% in 2023), and approximately 0.4% was reimbursed under the PFS (0.4% in 2023). Dx has experienced governmental reimbursement reductions as a direct result of several Congressional acts and regulatory initiatives, including those designed to control healthcare expenses reimbursed by government programs through a combination of reductions to fee schedules, incentives to physicians to participate in alternative payment models such as risk-sharing, and new methods to establish and adjust fees.
The most significant of these developments was the Protecting Access to Medicare Act (PAMA). Beginning in 2018, under PAMA, the Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS) set the CLFS using the weighted median of reported private payer prices paid to certain laboratories that receive a majority of their Medicare revenue from the CLFS and PFS and that bill Medicare under their own National Provider Identifier (NPI). Applicable labs, including Dx, were required to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2017. CMS used that private market data to calculate weighted median prices for each test (based on applicable current procedural technology (CPT) codes) to represent the new CLFS rates beginning in 2018, subject to certain phase-in limits. For 2018 through 2020, a test price could not be reduced by more than 10.0% per year. PAMA resulted in a net reduction in reimbursement revenue of approximately $245.0 million between 2018-2020 from all payers affected by the CLFS.
Since 2021, the implementation of additional PAMA reporting and reimbursement changes have been delayed each year by legislators. Pursuant to PAMA as amended, for 2026 through 2028, a CLFS test price cannot be reduced by more than 15.0% per year (excluding non-PAMA reimbursement changes). CLFS rates for 2029 and subsequent periods will not be subject to phase-in limits. The phase-in of rates for Clinical Diagnostic Laboratory Tests (CDLTs) established in 2018 will resume in 2026. New CLFS rates will be established in 2027 based on data from 2019 to be reported in 2026. New CLFS rates will be established in 2030 based on data from 2028 to be reported in 2029. CLFS rates for Advanced Diagnostic Laboratory Tests will be updated annually. Unless implementation of PAMA is further delayed or changed, additional reductions in reimbursements of $100.0 million are expected for 2026 from all payers affected by the CLFS.
The American Clinical Laboratory Association (ACLA) filed a federal civil action in 2017 challenging the legal basis for the data collection methodology CMS used to derive the data from which the median prices were calculated. On July 15, 2022, the U.S. Court of Appeals for the D.C. Circuit ruled in favor of ACLA on the merits, finding that CMS harmed laboratories by collecting data in an arbitrary and capricious manner, but refused to grant relief due to PAMA’s statutory bar on judicial review of establishment of the rates.
Since the initial data collection, CMS has revised its PAMA regulations to increase the number of hospital outreach labs that will be required to report private market data in future collections. Reports by the U.S. Government Accountability Office (GAO), the HHS Office of Inspector General (OIG), and the Medicare Payment Advisory Commission (MedPAC) on PAMA implementation have identified certain instances of actual or potential increased Medicare expenditures under PAMA, as well as potential alternative methodologies for data collection under PAMA, which could result in further efforts to amend PAMA by Congress.
ACLA has continued to work with Congress on potential legislative reform of PAMA, which if adopted could reduce the negative impact of PAMA as currently implemented by CMS. Under the Laboratory Access for Beneficiaries Act, MedPAC was required to conduct a study and make recommendations to Congress on ways to improve data collection, reporting, and rate setting under PAMA to achieve, in a less burdensome manner, CLFS rates that accurately and fairly reflect private market rates. MedPAC’s June 2021 report to Congress included an analysis of potential statistical sampling methodologies that could accomplish that objective, and ACLA incorporated the concept in PAMA reform proposals to Congress. On June 22, 2022, the Saving Access to Laboratory Services Act (SALSA), was introduced in both the U.S. Senate and the U.S. House of Representatives to provide for permanent reform of PAMA incorporating many of ACLA’s proposals. SALSA was re-introduced in the US. Senate on March 28, 2023, and in the U.S. House of Representatives on March 29, 2023. ACLA is considering amendments and alternatives to SALSA that remain under evaluation. The Company supports the ongoing efforts to prevent or lessen the negative impact of the changes to the CLFS pursuant to PAMA, and the full impact of those efforts, but what the long-term effect will be on the CLFS rates is not yet known.
Further healthcare reform could occur in 2025, including changes to the Patient Protection and Affordable Care Act (ACA) and Medicare and Medicaid reform, as well as administrative requirements that may continue to affect coverage, reimbursement, and utilization of laboratory services in ways that are currently unpredictable.
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In addition, market-based changes have affected and will continue to affect the clinical laboratory business. Reimbursement from commercial payers for diagnostic testing may shift away from traditional, fee-for-service models to alternatives, including value-based, bundled pay-for-performance, and other risk-sharing payment models. The growth of the managed care sector and consolidation of MCOs present various challenges and opportunities to Dx and other clinical laboratories. Dx’s ability to attract and retain MCO customers has become even more important as the impact of various healthcare reform initiatives continues, including expanded health insurance exchanges and ACOs.
The Company serves many MCOs. These organizations have different contracting philosophies, which are influenced by the design of their products. Some MCOs contract with a limited number of clinical laboratories and engage in direct negotiation of rates. Other MCOs adopt broader networks with generally uniform fee structures for participating clinical laboratories. In some cases, those fee structures are specific to independent clinical laboratories, while the fees paid to hospital-based and physician-office laboratories may be different and are typically higher. MCOs may also offer managed Medicare or managed Medicaid plans. In addition, some MCOs use capitation rates to fix the cost of laboratory testing services for their enrollees. Under a capitated reimbursement arrangement, the clinical laboratory receives a per-member, per-month payment for an agreed upon menu of laboratory tests or based upon the proportionate share earned by the clinical laboratory from a capitation pool. When the agreed upon reimbursement is based solely on an established rate per member, revenue is not impacted by the volume of testing performed. Under a capitation pool arrangement, the aggregate value of an established rate per member is distributed based on the volume and complexity of the procedures performed by laboratories participating in the agreement. For the year ended December 31, 2024, capitated contracts with MCOs accounted for approximately $366.0 million, or 3.6%, of Dx’s revenues.
In addition to reductions in test reimbursement, the Company also anticipates potential declines in test volumes as a result of increased controls over the utilization of laboratory services by Medicare, Medicaid, and other third-party payers, particularly MCOs. MCOs are implementing, directly or through third parties, various types of laboratory benefit management programs, which may include laboratory networks, utilization management tools (such as prior authorization and/or prior notification), and claims edits, which impact coverage and reimbursement of clinical laboratory tests. Some of these programs address clinical laboratory testing broadly, while others are focused on certain types of testing, including molecular, genetic, and toxicology testing. In addition, continued movement by patients into consumer-driven health plans may have an impact on the utilization of laboratory testing.
Helping to balance the overall negative market changes regarding reimbursement discussed above, the Company believes that the volume of clinical laboratory testing is positively influenced by several factors, including an increase in the number and types of tests that are readily available (due to advances in technology and increased cost efficiencies) for the diagnosis of disease, and the general aging of the U.S. population. Periodic infectious disease outbreaks such as the SARS-CoV-2 virus also have the potential to generate additional testing volume in the future and enhance stakeholders’ appreciation for the value of laboratory testing in combating future potential outbreaks. Dx believes that its enhanced and growing menu of tests, focus on high-potential clinical areas, leading position with CDx, broad geographic footprint, and operating efficiency make it well positioned for growth due to a number of market factors, primarily related to a continued drive to improve outcomes and reduce costs across the healthcare system, including but not limited to greater price transparency required under “surprise billing” laws and regulations requiring disclosure of hospital charges.
Biopharma Laboratory Services Segment
During 2024, the BLS segment generated $2,922.6 million in revenues and $458.9 million in segment operating income, resulting in an operating margin of 15.7%.
In Millions Year Ended December 31,
BLS segment operating income $ 458.9 $ 396.3
BLS provides drug development, medical device and CDx development solutions from early-stage research to clinical development, along with support for crop protection and chemical testing, through its ED and Central Laboratory Services businesses. Its customers are comprised of pharmaceutical, biotechnology, medical device, and diagnostic companies across the world. With a global network of operations, BLS offers deep expertise in early development and clinical trials in each therapeutic area. BLS had provided support for more than 75% of the new drugs and therapeutic products approved in 2024 by the FDA, including 86% of those specific to oncology, 74% of those submitted by biotechnology companies, and 80% of those submitted by leading and large pharmaceutical companies. Through its industry-leading central laboratory business, it supports clinical trial activity in approximately 100 countries.
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Service Key Features
Human Capital
Mission and Culture
The Company believes in the power of science to change lives. The Company’s culture centers around its mission to improve health and improve lives. The Company’s nearly 70,000 employees located across 17 countries are essential to the Company’s ability to innovate and advance science and technology to empower patients, providers, and pharmaceutical companies to make clear and confident decisions. Engaging the collective expertise and passion of its employees across the globe is vital to achieving the Company’s mission, which permeates its performance-driven, collaborative, inclusive, customer-centered, and inquisitive culture.
Workforce Demographics
The Company’s global talent is core to its ability to innovate and meet a wide range of patient and customer needs. The Company’s employees are globally dispersed, with 89% in the U.S. and Canada, 5% in Asia, and 6% in Europe. Of the Company’s global workforce, 87% of employees are full time, and 13% are part time. Approximately 71% of the Company’s employees globally are women. Of the U.S.-based employees, approximately 52% of the team are people of color. About 2.5% of the Company’s global workforce is employed under a collective bargaining agreement. Depending on business demand and the availability of talent, the Company supplements up to 8% of its workforce with contingent workers.
In 2024, the Company made investments in its talent to support retention and enable the Company’s growth. For the fourth consecutive year, hiring outpaced voluntary attrition, both globally and in the U.S.
Talent Initiatives
The Company’s talent initiatives support the development of inclusive leadership and culture, enhancing the team member experience, and supporting community engagement and patient focus. Highlights for 2024 include:
•Launch of a listening strategy, including measuring employee experience, inclusion, and well-being;
•Supporting our Employee Resource Groups (ERGs), which are created and led by employee volunteers and open to all employees. ERGs are important resources to foster cross-connections, encourage belonging, support career development, and champion employee voices. The Company now has nine unique ERGs – with 118 local chapters across eight countries (United States, Belgium, China, Switzerland, Germany, India, Singapore, and United Kingdom)
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with 7,900 participating employees, representing a growth of 43% participation compared to the year prior. Each ERG has executive sponsorship from senior leadership;
•Recognition of locally relevant celebrations of cultural events reflecting the breadth of different cultures, constituencies, and observances throughout the year;
•Continued deployment of anti-harassment training to employees around the world;
•Continued support of mentoring programs, including a formal mentoring initiative;
•Continued opportunities for greater engagement between employees and management, including quarterly global town halls, which are held virtually and are open to all employees, interactions with front-line employees on visits to the Company’s facilities, and in-person town halls with employees across business units and functions;
•Harmonization of the U.S. paid holiday policy to now recognize six company-designated holidays and one floating holiday – providing a more consistent and inclusive experience for eligible U.S. non-exempt employees. By offering the flexibility of a floating holiday, the Company aims to better accommodate the unique needs, beliefs, and backgrounds of our workforce; and
•Received several awards, such as Silver Military Friendly Award, Best Place to Work for Disability Inclusion, and Forbes’ Best Places to Work for Diversity.
Rewards
The Company operates in a complex, global, and dynamic healthcare industry and believes that its compensation and benefits programs are comprehensive and flexible to attract and retain the caliber of talent needed for the sustained growth and success of the business.
The Company regularly monitors market activity and employee movement within and outside of the healthcare industry to maintain competitiveness. In 2024, the Company awarded $93 million in annual merit increases to recognize its talent and foster pay competitiveness in the market.
Employee Well-being
The Company believes that its investments in compensation and employee well-being are crucial to maintaining comprehensive positioning and a productive, engaged workforce. The Company fulfills its commitment to employee well-being by investing in a variety of holistic tools and resources to support its employees’ physical, emotional, and financial well-being.
In early 2024, the Company re-launched its wellness program making it more inclusive of both domestic and international employees. This new program, called “Best You”, translates easily into the different languages of our international employees and can be tailored to local needs by “Best You Champions” that are present in most countries where the Company has in-office employees. The Company is integrating Best You into the fabric of our company worldwide. The Company has outreach programs to support its ERGs and other groups in providing wellness support to members.
In support of Best You, the Company continues to offer zero-cost telehealth and implemented free virtual Primary care visits for medical, dermatological, and behavioral treatment as part of its medical plans in the U.S., employer matching 401(k) contributions, financial wellness workshops, and custom stress management strategies for teams around the world.
The Company also understands the importance of providing mental health resources to support employees and their families. In 2024, the Company implemented a global employee assistance program (EAP) solution to support employee mental health across the globe. In addition, a suite of People Leader Mental Health Trainings was expanded to further support employees. Best You wellbeing breaks were leveraged by leaders for their teams across the globe, with sessions such as guided meditations and stretch breaks. In partnership with EAP providers, the Company recognized World Kindness Day in November 2024 with events and education throughout the whole month, including videos from our executive leadership team educating and supporting a culture of Kindness, which also helps build an inclusive culture committed to the Company’s mission and strategy.
Additional efforts in support of employee wellbeing include:
•Reducing the cost of monthly medical insurance contributions by $240 per year for more than 17,500 employees in the U.S. earning less than $50,000 per year who participate in Company medical plans;
•Offering free annual wellness screenings for U.S. employees and covered spouses/domestic partners focusing on identifying metabolic conditions that can increase the risk of heart attack, stroke and diabetes. Nearly 28,000 U.S. employees and their covered spouses completed the no-cost screening and earned an annual medical plan contribution discount of up to $4,560;
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•Providing up to $1,000 in health reimbursement arrangement and health savings account contributions, available to approximately 31,000 employees and their spouses or domestic partners to encourage health and wellness education and activities;
•Reimbursing up to $300 in fitness-related expenses for more than 13,000 employees across the U.S. and Canada;
•Providing free ColoFitTM kits to over 5,000 employees to enhance colon cancer awareness and screenings;
•Offering Weight Watchers at no cost to employees and adding Weight Watchers Clinic access to support weight health with more than 7,400 employees actively engaged; and
•Expanding $0 MDLIVE services to include Virtual Primary Care alongside Urgent Care, Behavioral Health, and Dermatology for U.S. medical plan participants.
The Company’s No Charge Laboratory Testing program enables eligible U.S. employees and their covered dependents to offset any outstanding balance for most lab work sent to a Company facility or patient service center, following insurance claim processing. Additionally, the Company offers global initiatives to encourage sustainable transportation through programs such as discounted transportation vouchers, reduced-cost bicycle leases, and mileage reimbursement for bicycle commuters, with benefits varying by country.
To enable its employees to establish ownership in the Company, the Company offers an employee stock purchase plan that permits substantially all U.S., Canada, and United Kingdom employees to purchase Common Stock at a 15% discount.
Development and Training
As an organization that pursues answers to the world’s most critical healthcare questions, the Company supports its employees with a work environment that emphasizes continuous learning and development. Through these learning and development opportunities, the Company encourages learning, growth, and innovation to deliver better patient care and new solutions for its customers. The Company provides professional skills training and role specific training, along with formal and informal mentoring and job rotations. The Company onboards and develops new hires through extensive training provided by a dedicated team of technical skill trainers with different departments and functions.
2024 Training Milestones:
•Provided more than 13,000 courses, many of which are available virtually within the global learning management system;
•Completed over 1.1 million hours of training, primarily consisting of regulatory and technical training;
•Offered mentoring programs that nearly 2,800 employees participated in as either mentors or mentees; and
•Completed more than 15,000 hours of professional development.
As a leader in science, the Company has almost 12,000 science-based jobs and leverages several internal scientific forums to help scientists at all levels of experience continuously learn, innovate, and advance their skills in the healthcare industry. Through these forums, those in scientific roles are staying current in their fields of study, sharing their knowledge with others, and helping to expand the skills and experience of their colleagues.
The Company’s ongoing investment in the development of its people stems from a continuing commitment to build a highly talented team. In addition to traditional tuition reimbursement, over the past four years Labcorp Education Advantage has actively supported employees in their pursuit of higher education by covering tuition costs for healthcare or life science degree programs that contribute to their career advancement within the Company. To date, more than 1,800 employees have benefited from this initiative, while also avoiding student loan debt.
To assist with creating a pipeline of future medical lab scientists to support its customers, the Company established the Labcorp School of Medical Laboratory Sciences. The National Accrediting Agency of Clinical Laboratory Sciences approved the Company’s application, which allowed the Company to host an inaugural class of students as part of its accreditation process. In September 2024, five students across three U.S. sites joined the inaugural class. The Company is providing training to students tuition free to support them in obtaining certification for technical careers that are in high demand. Students have the option to work in the Company’s laboratories outside of school hours.
Health and Safety
The nature of the Company’s business requires employees to work directly with patients and animals. This includes the handling, processing, and testing of human or animal specimens on a daily basis. As the health and safety of employees is a primary concern, the Company has established numerous employee health and safety protocols, including engineering and administrative controls, policies, procedures, processes, and training to minimize the potential for, and the severity of, work-related injuries and illnesses.
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In 2024, the Company reduced its work-related injury rate per 100 employees by 14.2% and its work-related lost work injury rate per 100 employees by 24.7%. The Company completed a Corporate EHS Audit on 11 significant laboratory facilities, allowing it to assess locations against common expectations and performance criteria. The Company also completed nearly 120,000 safety training sessions covering topics that included bloodborne pathogen, chemical safety, and employee health and safety general awareness.
Community Engagement
Labcorp fosters a culture of giving back beyond the scope of day-to-day tasks. The Access for All initiative leads community engagement efforts of Labcorp and its employees to make a positive impact across the globe. The Labcorp Charitable Foundation extends Labcorp’s commitment to Access for All by investing in programs in communities across the globe in the areas of health, education and community.
In 2024, colleagues continued to support the Company’s global Employee Giving Campaign. Through the campaign, colleagues are able to collectively support the following charities: American Cancer Society, American Heart Association, American Diabetes Association, American Red Cross, United Way, National Urban League, Project HOPE, and new in 2024 to expand Labcorp’s global reach, the International Committee of the Red Cross. These agencies align with Labcorp’s mission to improve health and improve lives by leading the way in healthcare research, providing services to benefit the underserved, and supporting those affected by disaster. Additionally, The Labcorp Charitable Foundation offers a match opportunity for contributions made through the campaign.
Labcorp, its employees and The Labcorp Charitable Foundation are committed to expanding access to healthcare, education, housing, and community support through strategic philanthropy and volunteerism. The Company’s initiatives address social determinants of health while fostering science, technology, engineering, and math education, particularly in underserved communities. By investing in the well-being of those Labcorp serves, the Company helps build stronger communities, remove barriers to healthcare and create opportunities for success.
Throughout the year, whether through financial grants or employee volunteerism, the Company is focused on providing Access for All. Labcorp’s employees assisted in building homes, collecting food, serving meals, and providing essential items to help in underserved communities. The Company financially supported patient assistance programs and community education programs to help improve health of the patients it serves.
Dynacare, a Labcorp company committed to Canada’s health and wellness, continued their efforts to raise awareness about type 2 diabetes and provide testing to those that need it most. During Diabetes Awareness Month, Dynacare partnered with Diabetes Canada to organize five mobile clinics in communities that are most at risk of developing diabetes.
Continuing efforts to make a positive impact, colleagues from across the globe teamed up to serve their communities through the Healthy Communities Contest. This contest ran for three months and encouraged Labcorp employees to unite in acts of kindness to advance Access for All through volunteerism. In return, three teams were selected for their chosen charity to receive a grant from The Labcorp Charitable Foundation.
The Labcorp Charitable Foundation, a private, charitable 501(c)(3) organization established and supported by the Company, invested in more than 200 programs in 2024 that align with the Company’s strategic mission to improve health and improve lives by supporting efforts that increase access to health services, particularly for underserved populations across the globe. Through a partnership with Project HOPE, the Labcorp Charitable Foundation supported a rural health program in China to increase access to pediatric and cancer care services.
The Labcorp Charitable Foundation remained committed to providing relief to communities in need following disaster through support of the American Red Cross Disaster Responder Program. This ongoing commitment supports enables the American Red Cross to provide individual emergency assistance, disaster preparedness, food, shelter and relief items, health and emotional support, and community recovery leading up to and following a disaster or crisis. The Foundation also matched employee donations made to qualified health and humanitarian organizations.
Additionally, in response to the devastation caused by storms such as Hurricanes Helene and Milton along the U.S. East Coast, Labcorp employees mobilized to raise funds, organize donation drives and directly assist impacted communities.
In 2024, Labcorp continued to empower its employees to serve as agents of positive change, aligning their personal values with the Company's mission of enhancing health, through two signature employee engagement programs. Double Your Donation offers a 1:1 match by The Labcorp Charitable Foundation for Labcorp employee donations to qualifying non-profit organizations. Dollars for Doers encourages Labcorp employees to support their communities through volunteer service by offering a monetary donation from The Labcorp Charitable Foundation in recognition of their volunteer or board service to eligible non-profit organizations.
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Customers
The Company provides its services to a broad range of customers across Dx and BLS. The primary customer groups serviced by the Company include:
•Payers - Health Plans. The Company serves many health plans, including MCOs, employer plans, and other health insurance providers, each of which operates on a national, regional, or local basis. In certain locations, health plans may delegate to independent physician associations (IPAs) or other alternative delivery systems (e.g., ACOs) the ability to negotiate for services on behalf of certain members.
•Pharmaceutical, Biotechnology, Medical Device, and Diagnostics Companies and Contract Research Organizations (CROs). The Company provides services to hundreds of pharmaceutical, biotechnology, medical device, and diagnostics companies and CROs ranging from the world’s largest multi-nationals to emerging, small and mid-market companies.
•Physicians, Large Provider Organizations, and Other Healthcare Providers. Physicians and other healthcare providers who are authorized to order clinical laboratory testing for their patients are a primary source of requests for Dx’s testing services. These physicians and other providers may practice in a range of settings, including small medical practices, community-based clinics, and large, multidisciplinary organizations.
•Hospitals and Health Systems. The Company provides hospitals and health systems with services ranging from core and specialty testing to supply chain and technical support services, and the opportunity to be a research partner for participation in studies and clinical trials with BLS. In some cases, a hospital’s on-site laboratory may be operated or managed by an outside contractor or independent laboratory, including the Company.
•Other Customers. The Company serves a broad range of other customers, including, but not limited to, governmental agencies, employers, patients and consumers, crop protection and chemical companies, academic institutions, independent clinical laboratories, and retailers.
Sales, Marketing, and Customer Service
The Company offers its services through a sales force focused on serving the specific needs of customers in different market segments. The Company’s sales force is responsible for both new sales and for customer retention and relationship building.
For Dx, these market segments have different representatives focused on each segment in order to better understand and respond to the unique needs of each segment. These include clinical areas, such as primary care, oncology, women’s health, autoimmune diseases, neurology, infectious diseases, endocrinology, gastroenterology, rheumatology and other specialties; payers, such as ACOs, MCOs, and employers, and customers, such as physicians and physician organizations, and hospitals and health systems. The BLS global sales organization provides customer coverage across the pharmaceutical, biotechnology, and medical device industries for services including lead optimization, preclinical safety assessment, analytical services, clinical trial enablement through data insights, central laboratory services, biomarker testing, CDx, and technology solutions. As part of the Company’s ongoing strategic priority to maximize the value of its unique leadership in both diagnostics and biopharma laboratory services, sales representatives from each business segment work together on outreach to potential customers of both businesses, including hospitals and health systems that may purchase testing and participate in clinical trials, or pharmaceutical, biotechnology, or medical device companies whose studies may benefit from use of Dx’s specialty testing, companion diagnostics, and network of PSCs.
Market Opportunity
Dx
The Company believes that in 2024, the U.S. clinical laboratory testing industry generated revenues of more than $80 billion. The clinical laboratory industry consists primarily of three types of providers: hospital-based laboratories, physician-office laboratories, and independent clinical and anatomical pathology laboratories, such as those operated by Dx.
The clinical laboratory business is intensely competitive, and the Company believes that both competition and consolidation in the clinical laboratory business will continue. CMS has estimated that, as of March 2024 (the most recent data available as of the filing of this report), there were nearly 320,000 clinical laboratories of all types, including approximately 9,200 hospital-based laboratories, just under 123,000 physician-office laboratories, and approximately 8,500 independent clinical and anatomic pathology laboratories in the U.S. Dx competes with all of those laboratories. In addition, an increasing number of health system laboratories have been expanding their operations and business, resulting in greater competition for testing from physicians within those systems and from unaffiliated physicians in the health system laboratories’ service areas.
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Dx believes that the selection of a laboratory is primarily based on the following factors, all of which the Company believes Dx competes favorably in:
•brand strength and reputation;
•leadership in science, technology, and innovation;
•patient satisfaction levels;
•national scale, and local presence with access to testing within 10 miles of most households;
•quality, timeliness, and consistency in reporting test results;
•contractual relationships with MCOs;
•number and type of tests performed;
•connectivity solutions offered; and
•pricing of the laboratory’s services.
In addition to the factors listed above, the Company believes that the operational and economic efficiencies provided by its integrated service and logistics network, large-scale automated testing, and regular introduction of new technologies will allow the Company to compete effectively with other providers of laboratory services.
BLS
The Company believes that in 2024, the global pharmaceutical industry spent more than $200 billion on R&D. Drug development services businesses like BLS typically derive most of their revenue from R&D, as well as marketing expenditures, of the pharmaceutical, biotechnology, and medical device industries.
Outsourcing of R&D services to CROs and other service providers remains integral to the drug development process. The pharmaceutical market will continue to feel the pressure to improve return on investment, increase R&D productivity, stay abreast of scientific advancements and comply with stringent government regulations and attempts to reduce and control the price of prescription drugs, all supporting the outsourcing model. In the face of mounting complexity, the investment and amount of time required to develop new products are significant and have been increasing. These trends create opportunities for BLS and other companies providing drug development services that can help make the development process more efficient.
The drug development industry has many participants ranging from hundreds of small providers to a limited number of large companies with global capabilities. BLS competes against these small and large businesses, as well as in-house departments of pharmaceutical, biotechnology, medical device, and diagnostic companies, and to a lesser extent, selected academic research centers, universities, and teaching hospitals.
BLS believes that the selection of a drug development partner is primarily based on the following factors, all of which the Company believes it competes favorably in:
•reputation for quality and regulatory compliance;
•efficient, timely performance;
•expertise and experience in operations;
•application of technology and innovation;
•specific therapeutic and scientific expertise;
•data and analytical capabilities;
•ability to enhance patient recruitment;
•scope of service offerings;
•strengths in various geographic markets;
•price;
•quality of facilities;
•quality of relationships;
•size and scale;
•ability to support decentralized clinical trials;
•ability to develop CDx; and
•access to talent.
Quality
Dx and BLS have comprehensive quality systems and processes appropriate for their respective businesses. The Company’s quality programs are overseen by Dx’s National Office of Quality, BLS’s Global Regulatory Compliance and Quality Assurance Unit, BLS’s central laboratory services expanded laboratory management services department, and the Company’s global supply chain management department and project management staff. The Company has procedures for monitoring its internal performance, as well as that of its vendors, suppliers, and other key stakeholders. In addition, various groups and
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departments within the Company provide oversight to monitor and control vendor products and performance and play an essential role in the Company’s approach to quality through improvements in processes and automation.
Virtually all facets of the Company’s services are subject to quality programs and procedures, including accuracy and reproducibility of tests, turnaround time, customer service, marketing communications, data integrity, patient satisfaction, and billing. The Company’s quality programs include measures that compare current performance against desired performance goals to monitor critical aspects of service to its customers and patients. This includes licensing, credentialing, training, competency assessments of professional and technical staff, and internal auditing. In addition to the Company’s own quality programs, the Company’s laboratories, facilities, and processes are subject to on-site regulatory agency inspections and accreditation evaluations, surveys and proficiency testing by local or national government agencies and independent external accrediting programs, and inspections and audits by customers.
Thirty-five of the Company’s laboratories have received ISO 15189, ISO 17025, ISO 13485 and/or ISO 14791 accreditation, demonstrating that they meet international standards for quality and technical competence.
Information Systems
The Company is committed to developing and commercializing technology-enabled solutions it believes will support its operations and provide better care. The Company operates standard platforms for its core business services and its financial and reporting systems. These standard systems provide consistency within workflows and information as well as a high level of system availability, security, and stability. The primary laboratory systems include standardized support for molecular diagnostics, digital pathology, and enhanced specialty laboratory solutions. The Company’s centralized information systems are responsible for operational efficiencies, enabling the Company to achieve consistent, structured, and standardized operating results and effective patient care.
The information systems used by Dx and BLS are discussed in more detail in the sections dedicated to each of those segments. The Company’s cybersecurity processes and systems are discussed in more detail under “Cybersecurity” in Item 1C.
For several years the Company has deployed AI and machine learning tools to supplement its existing data analysis projects and support greater efficiency in its operations. The Company is currently evaluating and testing various additional applications of AI and machine learning tools, while also implementing policies and processes to provide appropriate oversight over the use of AI and machine learning tools by the Company.
Intellectual Property Rights
The Company relies on a combination of patents, trademarks, copyrights, trade secrets, and nondisclosure and non-competition agreements to establish and protect its proprietary technology. The Company has filed and obtained numerous patents in the U.S. and abroad, and regularly files patent applications, when appropriate, to establish and protect its proprietary technology. Occasionally, the Company also licenses U.S. and non-U.S. patents, patent applications, technology, trade secrets, know-how, copyrights, and trademarks owned by others. The Company believes, however, that no single patent, technology, trademark, intellectual property asset, or license is material to its business as a whole.
Patents covering the Company’s technologies are subject to challenges. Issued patents may be successfully challenged, invalidated, circumvented, or declared unenforceable so that patent rights would not create an effective competitive barrier. In addition, the laws of some countries may not protect proprietary rights to the same extent as do the laws of the U.S.
Parties may file claims asserting that the Company’s technologies infringe on their intellectual property. The Company cannot predict whether parties will assert such claims against it, or whether those claims will harm its business. If the Company is forced to defend against such claims, the Company could face costly litigation and diversion of management’s attention and resources. As result of such disputes, the Company may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may require financial or other terms that could have an adverse effect on the Company’s business and financial condition.
Regulation and Reimbursement
General
Because the Company operates in multiple distinct environments and in a variety of locations worldwide, it is subject to numerous, and sometimes overlapping, regulatory requirements. Both the clinical laboratory and the biopharma laboratory businesses are subject to significant governmental regulation at the international, national, state, and local levels. As described below, these regulations concern licensure and operation of clinical laboratories, claims submission and reimbursement for laboratory services, healthcare fraud and abuse, biopharma laboratory services, security and confidentiality of health information, quality, and environmental and occupational safety.
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Regulation of Clinical Laboratories
Virtually all clinical laboratories operating in the U.S. must be certified by the federal government or by a federally approved accreditation agency. In most cases, that certification is regulated by CMS through the Clinical Laboratory Improvement Act of 1967 and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), which requires that applicable clinical laboratories meet quality assurance, quality control, and personnel standards. Laboratories also must undergo proficiency testing and are subject to inspections. Clinical laboratories in locations other than the U.S. are generally subject to comparable regulation in their respective jurisdictions.
Standards for testing under CLIA are based on the complexity of the tests performed by the laboratory, with tests classified as “high complexity,” “moderate complexity,” or “waived.” Laboratories performing high-complexity testing are required to meet more stringent requirements than moderate-complexity laboratories. Laboratories performing only waived tests, which are tests determined by the FDA to have a low potential for error and requiring little oversight, may apply for a certificate of waiver exempting them from most CLIA requirements. All major and many smaller Company facilities hold CLIA certificates to perform high-complexity testing. The Company’s remaining smaller testing sites hold CLIA certificates to perform moderate-complexity testing or a certificate of waiver. The sanctions for failure to comply with CLIA requirements include suspension, revocation, or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, cancellation or suspension of the laboratory’s approval to receive Medicare and/or Medicaid reimbursement, as well as significant fines and/or criminal penalties. The loss or suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in the CLIA law or regulations (or interpretation of the law or regulations) could have a material adverse effect on the Company.
The Company is also subject to state and local laboratory regulation. CLIA provides that a state may adopt laboratory regulations different from or more stringent than those under federal law, and a number of states have implemented their own laboratory regulatory requirements. State laws may require that laboratory personnel meet certain qualifications, specify certain quality controls, or require maintenance of certain records.
The Company believes that it is in compliance in all material respects with all laboratory requirements applicable to its laboratories operating both within the U.S. and in other countries. The Company’s laboratories have continuing programs to maintain operations in compliance with all such regulatory requirements, but no assurances can be given that the Company’s laboratories will pass all future licensure or certification inspections.
FDA and Other Regulatory Agency Laws and Regulations
Various regulatory agencies, including CMS and the FDA in the U.S., regulate the development, testing, manufacturing, labeling, advertising, marketing, distribution, storage, import, export, performance, and surveillance of diagnostic and therapeutic offerings, including certain offerings provided by the Company and the development of therapeutic products that comprise the majority of BLS’s business. The FDA and other regulatory agencies periodically inspect and review the manufacturing processes and performance of diagnostic and therapeutic products, while CMS, certain state programs, and accreditation entities inspect and review the facilities, personnel, and procedures of clinical laboratories and their laboratory operations. The FDA and other regulatory agencies also periodically inspect test facilities that perform tests on samples from preclinical studies and on human subjects enrolled in such clinical studies of drugs, biologics, and medical devices. These agencies have the authority to take various administrative and legal actions for noncompliance, such as fines, withdrawal of product approval, warning or untitled letters, seizures, recalls, injunctions, and other civil and criminal sanctions.
Since 2014, there have been ongoing discussions and advocacy between stakeholders, including the clinical laboratory industry, the FDA, and Congress, about potential FDA regulation of laboratory-developed tests (LDTs), which are assays developed and performed in-house by clinical laboratories and can be made available to the public without pre-market review by the FDA, with limited exceptions that require LDTs to follow pre-market requirements, such as during the COVID-19 public health emergency.
On September 29, 2023, the FDA released a proposed rule to regulate LDTs as medical devices, which was formally published in the Federal Register on October 3, 2023. The proposed rule sought to make explicit that in vitro diagnostic products (IVDs) are devices under the Federal Food, Drug and Cosmetic Act, including when the manufacturer of the IVD is a clinical laboratory. In conjunction with this proposed rule and issuance of new regulations, the FDA proposed a policy by which the FDA would phase out its general enforcement discretion approach for LDTs over a period of four years after the publication of a final rule so that LDTs manufactured by a clinical laboratory would, over the transition period, fall under the existing enforcement approach for IVDs. The proposed rule would not grandfather existing tests or exempt academic medical centers or small laboratories, but the FDA requested public comments on whether it should include those features in a final rule. ACLA disputes FDA’s assertion that LDTs are medical devices and filed comments in December 2023 opposing the proposed rule and urging its withdrawal for the reasons set forth in ACLA’s comments. Both ACLA and the Company have urged FDA
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to continue working with Congress and stakeholders toward enactment of appropriate legislation instead of pursuing device regulation of LDTs through rulemaking.
On May 6, 2024, the FDA published a final rule adopting its proposal to regulate LDTs as medical devices over a four-year phase-in period, but with certain changes related to ongoing enforcement discretion for certain categories of LDTs. The final rule became effective on July 5, 2024, and in the absence of a successful legal challenge, the first phase of compliance obligations will begin on May 6, 2025. Most notably, under the final rule, the FDA intends to exercise enforcement discretion and generally not enforce premarket review and most quality system requirements (except for records requirements) for tests currently marketed as LDTs that were first marketed prior to the issuance of the final rule, as long as they are not significantly modified; intends to exercise enforcement discretion and generally not enforce premarket review and most quality system requirements (except for records requirements) for LDTs offered by a laboratory integrated within a healthcare system to meet an unmet need of patients receiving care within the same healthcare system; intends to exercise enforcement discretion and generally not enforce premarket review requirements for tests that are approved by the New York State Clinical Laboratory Evaluation Program (NYS CLEP); and intends to exercise enforcement discretion and generally not enforce premarket review requirements for certain modifications made to 510(k)-cleared and de novo classified tests by CLIA-certified, high-complexity laboratories, even if that 510(k) clearance or classification is held by a different manufacturer. However, the FDA noted that it could change these enforcement discretion policies at any time in the future. The Company expects to be in material compliance with the final rule at applicable compliance dates if the final rule remains in force.
On May 29, 2024, ACLA and its member company, HealthTrackRx, filed a civil action in the U.,S. District Court for the Eastern District of Texas against the Secretary of the HHS seeking to overturn the final rule on grounds that HHS (and by delegation, FDA) lacks jurisdiction to regulate LDTs as medical devices and that even if such jurisdiction exists, the rule is unlawfully arbitrary and capricious. A similar civil action filed by the Association for Molecular Pathology has been consolidated with the ACLA action.
On November 21, 2024, ACLA submitted a formal request to the transition team for then President-elect Donald Trump to announce a policy of non-enforcement of the final rule together with a notice of intent to rescind the rule through notice and comment rulemaking. Discussions with Congress and other stakeholders on potential legislative alternatives to the final rule are ongoing.
There are similar national and regional regulatory agencies and regulations in the jurisdictions outside of the U.S. in which the Company operates. For example, the European Union (EU) Medical Device Regulation (EU MDR) which became applicable on May 26, 2021, and the In Vitro Diagnostics Regulation (IVDR), which became applicable on May 26, 2022, established a new legislative framework for medical devices and in vitro diagnostic devices (IVDs), including a rule-based classification and quality and safety standards. In contrast to the former Regulation, the IVDR also applies to IVDs used in diagnostic and therapeutic services provided outside the EU to patients based in the EU. After the new EU MDR and IVDR had come into force, it soon emerged that the transitional periods originally specified therein were not sufficiently long and were extended for the MDR up to December 31, 2028, and up to December 31, 2029, depending on the risk class of the device.
BLS’s laboratory facilities and Dx’s clinical laboratory facilities that perform testing services in support of preclinical studies and clinical trials must conform to a range of standards and regulations, including good laboratory practice (GLP) and good clinical practice (GCP), current good manufacturing practice (cGMP), human subject protection and investigational product exemption regulations, and quality system regulation (QSR) requirements, as applicable. The preclinical and clinical testing intended to support applications for research or marketing, and the studies that the Company conducts, are subject to periodic inspections by the FDA, as well as other pharmaceutical and medical device regulators in the jurisdictions outside the U.S. in which the Company operates, which may include, without limitation, the Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom (UK), the European Union, the European Medicines Agency, the National Medical Products Administration in China, and the Pharmaceuticals and Medical Devices Agency in Japan, to determine compliance with GLP, GCP, and cGMP, as well as other applicable standards and regulations. If a regulatory agency determines during an inspection that the Company’s equipment, facilities, laboratories, operations, or processes do not comply with applicable regulations and GLP, GCP and/or cGMP standards, the regulatory agency may issue a formal notice (e.g., Form FDA 483), which may be followed by a warning letter or other enforcement actions if observations are not addressed satisfactorily. Noncompliance may result in, among other things, unanticipated compliance expenditures, the regulatory agency seeking civil, criminal or administrative sanctions, and/or other remedies against the Company, including suspension of its operations, and related customer contractual claims and other liabilities.
The FDA Modernization Act 2.0 was enacted in December 2022 as Section 3209 of the Consolidated Appropriations Act, 2023. This Act amended Section 505 of the Federal Food, Drug and Cosmetic Act to clarify the methods manufacturers and sponsors can use to investigate the safety and efficacy of a drug or the toxicity of a biosimilar biologic product to include tests on animals, as well as certain tests that are not performed on animals. Specifically, the Act replaces a statutory reference to “tests on animals” as a viable option for preclinical testing with a reference to “nonclinical tests”, which includes animal testing,
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cell-based assays, microphysiological systems, or bioprinted or computer models. The Act does not eliminate animal testing or require the use of non-animal models. FDA previously had the authority to allow non-animal data to be considered during safety and efficacy reviews of new drugs and had previously issued related guidance. However, many procedures intended to reduce animal tests are still in various stages of development. Such alternative methodologies must first be validated before FDA will approve of their use instead of validated animal models, so the practical impact of the Act is likely to be limited for some time.
Additionally, certain BLS services and activities, such as chemistry, manufacturing, and controls (CMC) services, must conform to cGMP. BLS is subject to periodic inspections by the FDA and the MHRA, as well as other regulatory agencies in the jurisdictions outside the U.S. in which the Company operates, in order to assess, among other things, cGMP compliance. If a regulatory agency identifies deficiencies during an inspection, it may issue a formal notice, which may be followed by a warning letter if observations are not addressed satisfactorily. Failure to maintain compliance with cGMP regulations and other applicable requirements of various regulatory agencies could result in, among other things, fines, warnings or untitled letters, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, product seizures or recalls, injunctions, or criminal prosecution.
Some Dx offerings are regulated as medical devices by the FDA and other similar national regulatory agencies in jurisdictions outside the U.S. in which the Company operates. The FDA defines a medical device in part as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article which is intended for the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or prevention of disease in man. FDA regulatory requirements include: all of the relevant elements of the QSR, which requires manufacturers to follow stringent design, testing, control, documentation, and other quality assurance procedures; labeling regulations; restrictions on promotion and advertising; Medical Device Reporting regulations, which require the manufacturer to report to the FDA if its device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; the Reports of Corrections and Removals regulations, which require manufacturers to report certain recalls and field actions to the FDA;, and other post-market requirements.
On January 31, 2024, the FDA issued a final rule amending the device current good manufacturing practice (CGMP) requirements of the QSR to incorporate by reference the quality management system requirements of the international standard specific for medical device quality management systems set by the International Organization for Standardization (ISO), ISO 13485:2016. The revised regulation is now referred to as the Quality Management System Regulation (QMSR).The FDA has determined that the requirements in ISO 13485 are substantially similar to the requirements of the former QSR regulation, but the final rule establishes additional requirements that clarify certain expectations and certain concepts used in ISO 13485 to avoid inconsistencies with other applicable FDA requirements. The FDA will begin to enforce the QMSR requirements on the effective date, February 2, 2026.
To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced inspections by the FDA. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions, operating restrictions, partial suspension, or total shutdown of production, refusal to grant clearance or approvals of new devices, withdrawal of clearance or approval, and civil or criminal prosecution.
Animal Welfare Laws and Regulations
The conduct of animal research at BLS’s facilities in the U.S. must be in compliance with the Animal Welfare Act (AWA), which governs the care and use of warm-blooded animals for research in the U.S., other than laboratory rats, mice, and chickens, and is enforced through periodic inspections by the U.S. Department of Agriculture (USDA). The AWA establishes facility standards regarding several aspects of animal welfare, including housing, ventilation, lighting, feeding and watering, handling, veterinary care, and recordkeeping. BLS complies with licensing and registration requirement standards set by the USDA and similar agencies in foreign jurisdictions such as the European Union, the UK, and China for the care and use of regulated species. If the USDA determines that BLS’s equipment, facilities, laboratories, or processes do not comply with applicable AWA standards, it may issue an inspection report documenting the deficiencies and setting deadlines for any required corrective actions. The USDA may impose fines, suspend and/or revoke licenses and registrations, or confiscate research animals. Other countries where the Company conducts business have similar laws and regulations with which the Company must also comply. In addition, certain of BLS’s animal-related activities may be subject to regulation by the U.S. Centers for Disease Control and Prevention, the Office of Laboratory Animal Welfare of the National Institutes of Health, the U.S. Fish and Wildlife Service, and similar organizations in other jurisdictions in which the Company operates.
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Payment for Clinical Laboratory Services
In 2024, Dx derived approximately 10.5% of its revenue directly from traditional Medicare and Medicaid programs. In addition, Dx’s other commercial laboratory testing business that is not directly related to Medicare or Medicaid nevertheless depends significantly on continued participation in these programs and in other government healthcare programs, in part because customers often want a single laboratory to perform all of their testing services. In recent years, both governmental and private-sector payers have made efforts to contain or reduce healthcare costs, including for clinical laboratory services.
Reimbursement under the PFS is capped at different rates in each Medicare Administrative Contractor’s jurisdiction. Pursuant to PAMA, unless modified by Congress, reimbursement under the CLFS is set at a national rate that is updated every three years for most tests. State Medicaid programs are prohibited from paying more than the Medicare fee schedule limit for clinical laboratory services furnished to Medicaid recipients. Laboratories primarily bill and are reimbursed by Medicare and Medicaid directly for covered tests performed on behalf of Medicare and Medicaid beneficiaries. For beneficiaries that participate in managed Medicare and managed Medicaid plans, laboratory bills are submitted to and paid by MCOs that manage those plans. Approximately 8.8% of Dx’s revenue is reimbursed directly by Medicare under the CLFS.
Many pathology services performed by Dx are reimbursed by Medicare under the PFS. The PFS assigns relative value units to each procedure or service, and a conversion factor is applied to calculate the reimbursement. The PFS is also subject to adjustment on an annual basis. Such adjustments can impact both the conversion factor and relative value units. The Sustainable Growth Rate (SGR), the formula previously used to calculate the fee schedule conversion factor, would have resulted in significant decreases in payment for most physician services for each year since 2003. However, Congress intervened repeatedly to prevent these payment reductions, and the conversion factor was increased or frozen for the subsequent year. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) permanently replaced the SGR formula and transitioned PFS reimbursement to a value-based payment system. MACRA retroactively avoided a 21.2% reduction in PFS reimbursement that had been scheduled for April 1, 2015, and provided for PFS conversion factor increases of 0.5% from July 1, 2015 to December 31, 2015, and 0.5% in each of years 2016-2019, followed by no updates for 2020 through 2025, and updates that vary based on participation in alternative payment models in subsequent years. These changes to the conversion factor may be offset by reductions to the relative value units, as was the case with the 2016 PFS reductions. For 2022, Congress increased the conversion factor by 3.0% over the amount announced in the final rule, instead of allowing a 3.75% reduction to take effect. In the Consolidated Appropriations Act of 2023, Congress mitigated PFS cuts in 2023 and 2024 by 2.5% and 1.25%, respectively, that would otherwise have been reduced by 4.47% in 2023 based on the conversion factor put forward in the 2023 Medicare PFS Final Rule. Approximately 0.4% of Dx’s revenue is reimbursed under the PFS.
In addition to changes in reimbursement rates, Dx is also impacted by changes in coverage policies for laboratory tests and annual CPT coding revisions. Medicare, Medicaid and private payer diagnosis code requirements and payment policies negatively impact Dx’s ability to be paid for some of the tests it performs. Further, some payers require additional information to process claims, employ third-party utilization management tools, or have implemented prior authorization policies which delay or prohibit payment.
Future changes in national, state, and local laws and regulations (or in the interpretation of current regulations) affecting government payment for clinical laboratory testing could have a material adverse effect on the Company.
Further healthcare reform could occur in 2025, including changes to the ACA and Medicare reform, as well as administrative requirements that may continue to affect coverage, reimbursement, and utilization of laboratory services in ways that are currently unpredictable.
Privacy, Security and Confidentiality of Health Information and Other Personal Information
In the U.S., the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was designed to address issues related to the security and confidentiality of health information and to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions. These regulations apply to health plans and healthcare providers that conduct standard transactions electronically and healthcare clearinghouses (covered entities). Six such regulations include: (i) the Transactions and Code Sets Rule; (ii) the Privacy Rule; (iii) the Security Rule; (iv) the Standard Unique Employer Identifier Rule; (v) the National Provider Identifier Rule; and (vi) the Health Plan Identifier Rule. The Company, which may act as a HIPAA covered entity in certain circumstances, believes that it is in compliance in all material respects with each of the HIPAA Rules identified above.
The U.S. Health Information Technology for Economic and Clinical Health Act (HITECH) strengthened and expanded the HIPAA Privacy and Security Rules and their restrictions on use and disclosure of protected health information (PHI). HITECH includes, but is not limited to, prohibitions on exchanging PHI for remuneration and additional restrictions on the use of PHI for marketing. HITECH also imposes a number of Privacy Rule requirements and a majority of Security Rule provisions directly on business associates that were previously only directly applicable to covered entities. Moreover, HITECH requires covered
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entities to provide notice to individuals, HHS, and, as applicable, the media when unsecured PHI is breached, as that term is defined by HITECH. Business associates are similarly required to notify covered entities of a breach.
The Privacy Rule regulates the use and disclosure of PHI by covered entities. It also sets forth certain rights that individuals have with respect to their PHI maintained by a covered entity, such as the right to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI. The HIPAA Privacy Rule requires covered entities to contractually bind third parties, known as business associates, in the event that they perform an activity or service for or on behalf of the covered entity that involves the creation, receipt, maintenance, or transmission of PHI.
On February 6, 2014, CMS and HHS published final regulations that amended the HIPAA Privacy Rule to provide individuals (or their personal representatives) with the right to receive copies of their test reports from laboratories subject to HIPAA, or to request that copies of their test reports be transmitted to designated third parties.
On April 22, 2024, HHS issued a final rulemaking containing modifications to the HIPAA Privacy Rule to address the use or disclosure of PHI in relation to the provision of reproductive health care. The Company will implement appropriate processes to manage compliance with these changes as applicable. On December 27, 2024, HHS published a notice of proposed rulemaking (NPRM) containing potential modifications to the HIPAA Security Rule addressing prescriptive requirements for administrative, physical, and technical safeguards in response to increased cybersecurity incidents in the health care industry. The public comment period for the NPRM is expected to close on March 7, 2025. The Company is monitoring the NPRM process. If modifications to the HIPAA Security Rule are adopted, they may impact the Company’s compliance obligations under HIPAA.
The administrative simplification provisions of HIPAA mandate the adoption of standard unique identifiers for healthcare providers. The intent of these provisions is to improve the efficiency and effectiveness of the electronic transmission of health information. The National Provider Identifier Rule requires that all HIPAA-covered healthcare providers, whether they are individuals or organizations, must obtain an NPI to identify themselves in standard HIPAA transactions. NPI replaces the unique provider identification number and other provider numbers previously assigned by payers and other entities for the purpose of identifying healthcare providers in standard electronic transactions.
Violations of the HIPAA provisions could result in civil and/or criminal penalties, including significant fines and up to 10 years in prison. HITECH also requires HHS to conduct periodic audits to confirm compliance and authorizes state attorneys general to bring civil actions seeking either injunctions or damages in response to violations of the HIPAA privacy and security regulations that affect the privacy of state residents.
The total cost associated with complying with the ongoing requirements of HIPAA and HITECH is not expected to be material to the Company’s operations or cash flows. However, future regulations and interpretations of HIPAA and HITECH could impose significant costs on the Company.
The information blocking provisions (Information Blocking Rules) of the 21st Century Cures Act became effective on April 5, 2021. The Information Blocking Rules prohibit covered actors, including healthcare providers, from engaging in activity that is likely to interfere with the access, exchanges, or use of electronic health information unless such activity falls into one of eight exceptions. The Information Blocking Rules provide for civil monetary penalties for noncompliance by healthcare information technology vendors and, separately, “appropriate disincentives” for noncompliance by healthcare providers.
In addition to the regulations described above, numerous other data protection, privacy and similar laws govern the confidentiality, security, use, and disclosure of personal information, as well as breach notification responsibilities. These laws vary by jurisdiction, but they most commonly regulate or restrict the collection, use, and disclosure of medical and financial information and other personal information. In the U.S., the Federal Trade Commission has authority to regulate unfair or deceptive acts or practices, including with respect to data privacy and security. If the Company’s public statements about collection, use, or disclosure of personal information are perceived to be inconsistent with the Company’s actual practices, the Company may face accusations of unfairness or deception under the Federal Trade Commission Act of 1914 or state law equivalents. In addition, some state laws are more restrictive and, therefore, are not preempted by HIPAA. Penalties for violation of these laws may include sanctions against a laboratory’s licensure, as well as civil and/or criminal penalties.
Effective August 14, 2020, the Substance Abuse and Mental Health Services Administration of HHS (SAMHSA) announced the finalization of proposed changes to the Confidentiality of Substance Use Disorder Patient Records regulation. This regulation protects the confidentiality of patient records relating to the identity, diagnosis, prognosis, or treatment that are maintained in connection with the performance of any federally assisted program or activity relating to substance use disorder education, prevention, training, treatment, rehabilitation, or research. Under the regulation, patient identifying information may only be released with the individual’s written consent, subject to certain limited exceptions. The latest changes to this regulation seek to better facilitate care coordination, while maintaining more stringent confidentiality of substance use disorder information. The Company adopted changes to its policies and procedures necessary for compliance.
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Congress and state legislatures also have been adopting legislation relating to privacy and data protection. For example, on June 28, 2018, the California legislature passed the California Consumer Privacy Act (CCPA), which became effective January 1, 2020. The CCPA created transparency requirements and granted California residents several new rights with regard to their personal information. In addition, in November 2020, California voters approved the California Privacy Rights Act (CPRA) ballot initiative, which introduced significant amendments to the CCPA and established and funded a dedicated California privacy regulator, the California Privacy Protection Agency (CPPA). The amendments to the CCPA introduced by the CPRA went into effect on January 1, 2023. Implementing regulations have been introduced by the CPPA and additional regulations are anticipated. Failure to comply with the CCPA may result in, among other things, significant civil penalties and injunctive relief, or potential statutory or actual damages. In addition, California residents have the right to bring a private right of action in connection with certain types of incidents. These claims may result in significant liability and potential damages. Other states have passed legislation similar to the CCPA that generally mirror the principles and requirements of the CCPA; however, some of these laws do not provide for a private right of action. Additionally, Connecticut, Washington and Nevada have passed legislation specific to consumer health data. The Company has developed appropriate processes to manage compliance with these laws as applicable.
The EU General Data Protection Regulation (GDPR) establishes requirements applicable to the use and transfer of personal data and imposes penalties for noncompliance of up to the greater of €20 million or 4% of worldwide revenue. The GDPR, as well as the UK’s implementation -- the UK General Data Protection Regulation -- requires transparency with regard to the means and purposes of processing of personal data, collection of consent to process personal data in certain circumstances, the ability to provide records of processing upon request by a supervisory authority or data controller, implementation of appropriate technical and organizational measures to maintain security of personal data, notification of personal data breaches to supervisory authorities, data controllers, and individuals within expedient time frames, and performance of data protection impact assessments for certain processing activities. The GDPR also provides individual data subjects with certain rights, where applicable, including the right of access, the right to rectification, the right to be forgotten, the right to restrict or object to processing, and the right to data portability. The GDPR requires that personal data may only be transferred outside of the EU to a country that offers an adequate level of data protection under standards set by the EU, or where such transfer is otherwise pursuant to a legal framework approved by the EU. On July 16, 2020, the Court of Justice of the EU released its decision in Data Protection Commission v. Facebook Ireland Limited, (Schrems II), which invalidated the EU-U.S. Privacy Shield as a legal framework for the transfer of personal data outside of the EU, and suggesting additional safeguards for the use of Standard Contractual Clauses (SCCs) as a legal framework for the transfer of personal data outside of the EU. On June 4, 2021, the European Commission release updated SCCs, which, in part, adopted many of the additional safeguards highlighted in the Schrems II decision. Companies using SCCs for the transfer of personal data outside of the EU are required to use the new SCCs or an alternate approved form of data transfers. The Company has established processes and frameworks to manage compliance with the GDPR and other global privacy and data protection requirements, and to manage preparation for future enacted regulations. Compliance could impose significant costs on the Company.
In addition to the GDPR, numerous other countries have laws governing the collection, use, disclosure, and transmission (including cross-border transfer) of personal information, including medical information. The legislative and regulatory landscape for privacy and data protection is complex and continually evolving. Data protection regulations have been enacted or updated in regions where the Company does business including in Asia and Europe, and in countries such as Canada, India, and the UK. Failure to comply with these regulations may result in, among other things, civil, criminal and contractual liability, fines, regulatory sanctions, and damage to the Company’s reputation.
Potential government regulation related to AI use and ethics may also increase compliance costs and impact operations as the Company continues to develop, test, adopt, and maintain AI within the Company’s operations and in its offerings. The rapid evolution of AI, and potential government regulation, will require the application of resources to allow the Company to implement AI appropriately in order to minimize unintended, harmful impact, including from the exposure of Company or third-party information or the Company relying on flawed AI outputs. The Company has implemented an AI Code of Ethics and established an AI Ethics Board to review and help maintain compliance with AI ethical principles and regulatory requirements in the development and use of AI systems, including generative AI tools.
Fraud and Abuse Laws and Regulations
Existing U.S. laws governing federal healthcare programs, including Medicare and Medicaid, as well as similar state laws, impose a variety of broadly described fraud and abuse prohibitions on healthcare providers, including clinical laboratories. These laws are interpreted liberally and enforced aggressively by multiple government agencies, including the U.S. Department of Justice (DOJ), OIG, and various state agencies. Historically, the clinical laboratory industry has been the focus of major governmental enforcement initiatives. The U.S. government’s enforcement efforts have been conducted under statutory authorities such as those contained in HIPAA, which includes several provisions related to fraud and abuse enforcement, including the establishment of a program to coordinate and fund U.S., state and local law enforcement efforts, and in the Deficit
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Reduction Act of 2005, which included requirements directed at Medicaid fraud, including increased spending on enforcement and financial incentives for states to adopt false claims act provisions similar to the U.S. False Claims Act. Amendments to the False Claims Act, and other enhancements to the U.S. fraud and abuse laws enacted as part of the ACA, have further increased fraud and abuse enforcement efforts and compliance risks. For example, the ACA established an obligation to report and refund overpayments from Medicare or Medicaid within 60 days of identification (whether or not paid through any fault of the recipient); failure to comply with this requirement can give rise to additional liability under the False Claims Act and Civil Monetary Penalties statute.
The U.S. Anti-Kickback Statute prohibits knowingly providing anything of value in return for, or to induce the referral of, Medicare, Medicaid, or other U.S. federal healthcare program business. Violations can result in imprisonment, fines, penalties, and/or exclusion from participation in U.S. federal healthcare programs. The OIG has published “safe harbor” regulations that specify certain arrangements that are protected from prosecution under the Anti-Kickback Statute if all conditions of the relevant safe harbor are met. Failure to fit within a safe harbor does not necessarily constitute a violation of the Anti-Kickback Statute; rather, the arrangement would be subject to scrutiny by regulators and prosecutors and would be evaluated on a case-by-case basis. Many states have their own Medicaid anti-kickback laws, and several states also have anti-kickback laws that apply to all payers (i.e., not just government healthcare programs).
From time to time, the OIG issues alerts and other guidance on certain practices in the healthcare industry that implicate the Anti-Kickback Statute or other fraud and abuse laws. OIG Special Fraud Alerts and Advisory Opinions relevant to the Company set forth a number of practices allegedly engaged in by some clinical laboratories, healthcare providers, and biopharmaceutical manufacturers that raise issues under the U.S. fraud and abuse laws, including the Anti-Kickback Statute. These practices include: (i) providing employees to furnish valuable services for physicians (other than collecting patient specimens for testing) that are typically the responsibility of the physicians’ staff; (ii) offering or providing discounted laboratory services billed to referral sources in return for referrals of other tests that are billed to U.S. federal healthcare programs; (iii) providing free testing to physicians’ managed care patients in situations where the referring physicians benefit from such reduced laboratory utilization; (iv) providing free pickup and disposal of biohazardous waste for physicians for items unrelated to a laboratory’s testing services; (v) providing general-use facsimile machines or computers to physicians that are not exclusively used in connection with the laboratory services; (vi) providing free testing for healthcare providers, their families and their employees (i.e., so-called “professional courtesy” testing); (vii) rental of space in physician offices by equipment suppliers or other healthcare entities to which the physicians make referrals; (viii) compensation paid by laboratories to physicians and hospitals for blood specimen processing and for submitting patient data to registries; (ix) remuneration provided to physicians and other health care professionals by pharmaceutical and medical device companies in connection with company-sponsored speaker programs; (x) arrangements between telemedicine companies and healthcare professionals that result in the fraudulent ordering or prescribing of medically unnecessary services, including prescription drugs, durable medical equipment, and clinical laboratory testing; and (xi) the provision of free genetic and other testing sponsored by biopharmaceutical manufacturers for use in making diagnostic or other clinical decisions related to use of the manufacturers’ products.
In addition to the Anti-Kickback Statute, in October 2018, the U.S. enacted the Eliminating Kickbacks in Recovery Act of 2018 (EKRA), as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act. EKRA is an all-payer anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory. Although it appears that EKRA was intended to reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the language in EKRA is broadly written. As drafted, an EKRA prohibition on incentive compensation to sales employees is inconsistent with the federal anti-kickback statute and regulations, which permit payment of employee incentive compensation, a practice that is common in the industry. Significantly, EKRA permits the U.S. Department of Justice to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued, and there is no additional DOJ or other government guidance to indicate how and to what extent it will be applied and enforced in the industry. The Company continues to work through its trade association to address the scope of EKRA.
Under another U.S. statute, known as the Stark Law or “physician self-referral” prohibition, physicians who have a financial or a compensation relationship with a clinical laboratory may not, unless an exception applies, refer Medicare or Medicaid patients for testing to the laboratory, regardless of the intent of the parties. Similarly, laboratories may not bill Medicare or Medicaid for services furnished pursuant to a prohibited self-referral. There are several Stark Law exceptions that are relevant to arrangements involving clinical laboratories, including: (i) fair market value compensation for the provision of items or services; (ii) payments by physicians to a laboratory for clinical laboratory services; (iii) ancillary services (including laboratory services) provided within the referring physician’s own office, if certain criteria are satisfied; (iv) physician investment in a company whose stock is traded on a public exchange and has stockholder equity exceeding $75.0 million; and (v) certain space
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and equipment rental arrangements that are set at a fair market value rate and satisfy other requirements. Many states have their own self-referral laws as well, which in some cases apply to all patient referrals, not just government reimbursement programs.
In December 2020, the OIG and CMS published final rules to amend certain regulations implementing the Anti-Kickback Statute and the Stark Law, respectively. The amendments were primarily intended to alleviate perceived impediments to coordinated care and value-based compensation arrangements through new safe harbors to the Anti-Kickback Statute and new exceptions to the Stark Law and have varying degrees of applicability to laboratories. The CMS final rule incorporates laboratories and permits support for value-based arrangements, under certain conditions for purposes of the Stark Law. However, the OIG final rule generally excludes laboratories from protection under the Anti-Kickback Statute safe harbors for value-based arrangements.
There are a variety of other types of U.S. and state fraud and abuse laws, including laws prohibiting submission of false or fraudulent claims and that require certain companies to disclose payments and other transfers of value to certain healthcare professionals and providers. The Company seeks to conduct its business in compliance with all U.S. and state fraud and abuse laws. The Company is unable to predict how these laws will be applied in the future, and no assurances can be given that its arrangements will not be subject to scrutiny under such laws. Sanctions for violations of these laws may include exclusion from participation in Medicare, Medicaid, and other U.S. or state healthcare programs, significant criminal and civil fines and penalties, and loss of licensure. Any exclusion from participation in a U.S. healthcare program, or material loss of licensure, arising from any action by any federal or state regulatory or enforcement authority, would likely have a material adverse effect on the Company’s business. In addition, any significant criminal or civil penalty resulting from such proceedings could have a material adverse effect on the Company’s business.
Enrollment and re-enrollment in U.S. healthcare programs, including Medicare and Medicaid, are subject to certain program integrity requirements intended to protect the programs from fraud, waste, and abuse. In September 2019, CMS published a final rule implementing program integrity enhancements to provider enrollment requiring Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) providers and suppliers to disclose on an enrollment application or a revalidation application any current or previous direct or indirect affiliation with a provider or supplier that (i) has uncollected debt; (ii) has been or is subject to a payment suspension under a federal health care program; (iii) has been or is excluded by the OIG from Medicare, Medicaid, or CHIP, or (iv) has had its Medicare, Medicaid, or CHIP billing privileges denied or revoked. This rule permits CMS to deny enrollment based on such an affiliation when CMS determines that the affiliation poses an undue risk of fraud, waste, or abuse. CMS is phasing in this new affiliation disclosure requirement.
In November 2021, CMS published the 2022 Medicare PFS Final Rule, which included further program integrity requirements. CMS finalized its proposal to expand the categories of parties within the purview of the denial and revocation provisions to include excluded administrative or management services personnel who furnish services payable by a federal healthcare program, such as a billing specialist, accountant, or human resources specialist. CMS also codified the billing privilege deactivation rebuttal process, under which a provider or supplier would have 15 calendar days from receipt of written notice of a deactivation to submit a rebuttal, and CMS could, in its discretion, extend the 15-day period to account for certain special situations. In addition, CMS defined factors it would use to determine whether revocation or suspension of billing privileges is appropriate due to a pattern or practice of non-compliant billing, which would be: (i) the percentage of submitted claims that were denied during the period under consideration; (ii) whether the provider or supplier has any history of final adverse actions and the nature of any such actions; (iii) the type of billing non-compliance and the specific facts surrounding said non-compliance (to the extent this can be determined); and (iv) any other information regarding the provider’s or supplier’s specific circumstances that CMS deems relevant to the determination. This is a reduction in the number of factors that were previously considered and a revision of some previous factors.
Environment, Health, Safety, and Sustainability
The Company is subject to licensing and requirements under laws and regulations relating to the protection of the environment and employee health and safety. These laws and regulations, designed to minimize risk to employee health and safety and to the environment, include the safe handling, use, transportation, and disposal of potentially infectious and hazardous materials; the assessment of potential work-related risks and establishment of work practice and engineering controls, and providing protective clothing and equipment, training, and medical surveillance.
The Company is committed to reducing its carbon footprint. The Company participates in the CDP and the EcoVadis sustainable procurement rating processes. In 2023, the Company’s greenhouse gas emission (GHG) reduction science-based targets were accepted by the Science Based Targets initiative, and the Company has committed to reducing Scope 1 and 2 GHG emissions 42% and Scope 3 GHG emissions by 25% by year end 2030, versus a 2020 baseline.
Energy-saving measures at Company facilities include for example, installation of energy efficient boilers, chillers, ventilation systems, and light-emitting diode lighting, and engaging in waste-to-energy disposition. The Company is committed
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to reducing the fuel use of its courier fleet, and in 2024 the Company added nearly 469 hybrid vehicles to its fleet, to help achieve its goals of reducing fuel use. Funding for these and similar projects continued through 2024 and is expected to continue through 2027.
The Company seeks to comply with all relevant environment, employee-health, and safety laws and regulations. Failure to comply could subject the Company to various administrative and/or other enforcement actions.
Drug Testing
Drug testing for public sector employees is regulated by the SAMHSA, which has established detailed performance and quality standards that laboratories must meet to be approved to perform drug testing on employees of U.S. government contractors and certain other entities. To the extent that the Company’s laboratories perform such testing, each must be certified as meeting SAMHSA standards. The Company’s laboratories in Research Triangle Park, North Carolina; Raritan, New Jersey; Houston, Texas; Southaven, Mississippi; St. Paul, Minnesota; and Portland, Oregon, are all SAMHSA certified. Each laboratory also maintains state licensure and laboratory certifications required to provide testing for private sector employers.
Controlled Substances
BLS handles controlled substances as part of the services it provides in preclinical testing. The use of controlled substances is regulated by the U.S. Drug Enforcement Administration under the Controlled Substances Act (CSA) and its implementing regulations. The CSA establishes, among other things, certain registration, security, recordkeeping, reporting, import, export, and other requirements for controlled substances. The Company seeks to conduct its business in compliance with these requirements as applicable. Violations of these rules may result in criminal and civil fines and penalties.
Compliance Program
The Company maintains a global compliance program that includes ongoing evaluation and monitoring of its compliance with the laws and regulations of the U.S. and the other countries in which it has operations. The objective of the Company’s compliance program is to develop, implement, monitor, and update compliance safeguards, as appropriate. Although the Company is subject to a broad range of regulations, its compliance program has a particular focus on regulations related to healthcare fraud and abuse, anti-kickback, physician self-referral, government reimbursement programs, anti-bribery/anti-corruption, anti-human trafficking, and trade sanctions, among others. Emphasis is placed on developing and implementing compliance policies and guidelines, personnel training programs, risk assessment, monitoring and auditing activities, and providing systems for reporting and investigation of potential or actual compliance concerns. The compliance program demonstrates the Company’s commitment to conducting business at the highest standards of ethical conduct and integrity.
The Company seeks to conduct its business in compliance with all statutes, regulations, and other requirements applicable to its clinical laboratory operations and biopharma laboratory services business. The clinical laboratory industry and biopharma laboratory services industries are, however, subject to extensive regulation, and many of these statutes and regulations have not been interpreted by the courts. In addition, the applicability or interpretation of statutes and regulations may not be clear in light of emerging changes in clinical testing science, healthcare technology, and healthcare organizations. Applicable statutes and regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that would materially adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates, and authorizations necessary to operate, as well as potential liabilities from third-party claims, all of which could have a material adverse effect on the Company’s business.
Item 1A. RISK FACTORS
Investors should carefully consider all of the information set forth in this Annual Report, including the following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only ones that the Company faces. Additional risks not presently known to the Company, or that it presently deems immaterial, may also negatively impact the Company. The Company’s business, consolidated financial condition, revenues, results of operations, profitability, reputation or cash flows could be materially impacted by any of these factors.
Risks Related to the Company’s Business and Operations Including Global Economic and Geopolitical Factors
General or macro-economic factors and significant fluctuations in economic conditions in the U.S. and globally may have a material adverse effect upon the Company.
The Company’s operations are dependent upon ongoing demand for diagnostic testing and biopharma laboratory services by patients, physicians, hospitals, MCOs, pharmaceutical, biotechnology and medical device companies and others. Significant changes in global economic conditions, and an increase in the costs of goods and services, could negatively impact testing volumes, the demand for biopharma laboratory services, cash collections, profitability, and the availability and cost of credit.
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Pressures on and uncertainty surrounding the U.S. federal government’s budget, and potential changes in budgetary priorities, could adversely affect the funding for government programs that comprise a portion of the Company’s revenues. In addition, uncertainty in the credit markets and interest rate volatility could reduce the availability and increase the cost of credit and impact the Company’s ability to meet its financing needs in the future.
Operations may be disrupted and adversely impacted by events beyond the Company’s control, including natural disasters, adverse weather, geopolitical events, public health crises, acts of terrorism, disruption to supply chain, and inaccessibility of natural resources.
Natural disasters, such as adverse weather, fires, earthquakes, power shortages and outages, geopolitical events, such as terrorism, war, political instability, or other conflict, public health crises and disease epidemics and pandemics, criminal activities, disruptions to supply chains, inaccessibility of natural resources, and other disruptions or events beyond the Company’s control could negatively affect the Company’s operations. Any of these events may result in a temporary decline of testing volumes and other work in both segments. In addition, such events may temporarily interrupt the Company’s ability to transport specimens, efficiently commence, continue, or complete its work on studies, utilize information technology systems, utilize certain laboratories, and/or to receive material from its suppliers. Such events can also affect customer operations and thereby impact testing volume. Long-term disruptions in the infrastructure and operations caused by such events (particularly involving locations in which the Company has operations), could harm the Company’s operating results.
An inability to attract, retain, and develop experienced and qualified personnel, including key management personnel, and increased personnel costs, could adversely affect the Company’s business.
The loss of key management personnel or the inability to attract, retain, and develop experienced and qualified employees, at the Company’s clinical laboratories, drug development, and diagnostic facilities, and increased costs related to such personnel and employees, could adversely affect the business. The success of the Company is dependent in part on the efforts of key members of its management team. Success in maintaining the Company’s leadership position in genomic and other advanced testing and diagnostic technologies will depend in part on the Company’s ability to attract and retain skilled research professionals. In addition, the success of the Company’s early discovery, clinical, and commercial laboratories also depend on employing and retaining qualified and experienced professionals, including specialists, who perform laboratory research activities and testing services. The same is true for patient-facing staff with specialized training required to perform activities related to specimen collection or clinical research activities. In the future, if competition for the services of these professionals increases, the Company may not be able to continue to attract and retain individuals in its markets. Changes in key management, or the ability to attract, develop, and retain qualified personnel, as a result of increased competition for talent, wage growth, or other market factors, could lead to strategic and operational challenges and uncertainties, distractions of management from other key initiatives, and inefficiencies and increased costs, any of which could adversely affect the Company’s business, financial condition, results of operations, and cash flows.
Continued changes in healthcare reimbursement models and products (e.g., health insurance exchanges), changes in government payment and reimbursement systems, or changes in payer mix, including an increase in third-party benefits management and value-based payment models, could have a material adverse effect on the Company’s revenues, profitability and cash flow.
Dx testing services are billed to MCOs, Medicare, Medicaid, physicians and physician groups, hospitals, patients, and employer groups. Most testing services are billed to a party other than the physician or other authorized person who ordered the test. Increases in the percentage of services billed to government and MCOs could have an adverse effect on the Company’s revenues.
The Company expects the efforts to impose reduced reimbursement, more stringent payment policies, and utilization and cost controls by government and other payers to continue. If Dx cannot offset additional reductions in the payments it receives for its services by reducing costs, increasing test volume, and/or introducing new services and procedures, it could have a material adverse effect on the Company’s revenues, profitability, and cash flows. In 2014, Congress passed PAMA, requiring Medicare to change the way payment rates are calculated for tests paid under the CLFS, and to base the payment on the weighted median of rates paid by private payers. Pursuant to PAMA, reimbursement rates for many clinical laboratory tests provided under Medicare were reduced from 2018 through 2020. Enforcement of PAMA was suspended each year from 2021 through 2025, but a long-term resolution through legislation has not yet been achieved, and the next round of PAMA reductions are currently on track to be implemented in 2026. Unless implementation of PAMA is further delayed or changed, additional reductions in reimbursements of $100.0 million are expected for 2026 from all payers affected by the CLFS.
The Company’s ability to attract and retain MCOs is critical given the impact of healthcare reform, changes in coverage and evolving value-based care and risk-based reimbursement delivery models (e.g., accountable care organizations (ACOs) and Independent Physician Associations (IPAs)).
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A portion of the managed care fee-for-service revenues is collectible from patients in the form of deductibles, coinsurance and copayments. As patient cost-sharing continues to increase, the Company’s collections may be adversely impacted.
In addition, Medicare and Medicaid and private insurers have increased their efforts to control the cost, utilization and delivery of healthcare services, including commercial laboratory services. Measures to regulate healthcare delivery in general, and clinical laboratories in particular, have resulted in reduced prices, added costs and decreased test utilization for the commercial laboratory industry by increasing complexity and adding new regulatory and administrative requirements.
The Company has periodically experienced delays in the pricing and implementation of coding and billing changes among various payers, including Medicaid, Medicare and commercial carriers. Payer policy changes in coverage, along with coding and billing changes, have had a negative impact over time on revenue, revenue per requisition, and margins and cash flows. In 2024, limited coding and billing changes were implemented. While limited changes are expected to be implemented in 2025, the Company typically expects some delays in pricing and reimbursement as new codes are introduced.
The Company expects the efforts to impose reduced reimbursement, more stringent payment policies, and utilization and cost controls by government and other payers to continue. If Dx cannot offset additional reductions in the payments it receives for its services by reducing costs, increasing test volume, and/or introducing new services and procedures, it could have a material adverse effect on the Company’s revenues, profitability and cash flows.
Changes in government regulation or in practices relating to the pharmaceutical, biotechnology, or medical device industries could decrease the need for certain services that BLS provides.
BLS assists pharmaceutical, biotechnology, and medical device companies in navigating the regulatory approval process. Changes in government regulations, such as a relaxation in regulatory requirements or the introduction of simplified approval procedures or an increase in regulatory requirements that BLS may have difficulty satisfying or that may make its services less competitive, could eliminate or substantially reduce the demand for its services. Also, if government efforts to contain drug and medical product and device costs impact profits from such items, or if health insurers were to change their practices with respect to reimbursement for those items, some of BLS’s customers may spend less, or reduce their growth in spending on R&D.
Increased competition, including price competition, could have an adverse effect on the Company’s revenues and profitability.
As further described in Item 1 and Item 1A of Part I of this Annual Report, both Dx and BLS operate in competitive industries. The commercial laboratory business is intensely competitive in terms of price, service, specialty offerings, and the type and number of commercial laboratories. Dx and BLS compete against a wide range of businesses, as well as in-house departments of pharmaceutical, biotechnology, medical device, and diagnostic companies, and to a lesser extent, selected academic research centers, universities, and teaching hospitals. In addition, BLS’s services periodically experience periods of increased price competition that may have an adverse effect on the segment’s profitability and consolidated revenues and net earnings.
Failure to obtain and retain new customers, the loss of existing customers or material contracts, or a reduction in services or tests ordered or specimens submitted by existing customers, or the inability to retain existing and/or create new relationships with health systems could impact the Company’s ability to successfully grow its business.
To maintain and grow its business, the Company needs to obtain and retain new customers and business partners. In addition, a reduction in tests ordered or specimens submitted by existing customers, a decrease in demand for the Company’s services from existing customers, or the loss of existing contracts, without offsetting growth in its customer base, could impact the Company’s ability to successfully grow its business and could have a material adverse effect on the Company’s revenues and profitability. The Company competes primarily on the basis of reputation, efficient and timely performance, and leadership in science, technology and innovation. The Company’s failure to successfully compete in any of these areas could result in the loss of existing customers, an inability to gain new customers, and reduced or stagnant growth of the Company’s business.
Discontinuation or recalls of products used in the performance of testing, failure to develop or acquire licenses for new or improved testing technologies, or the Company’s customers using new technologies to replace offerings currently provided by the Company could adversely affect its business.
From time to time, manufacturers discontinue or recall reagents, test kits, or instruments used by the Company to perform laboratory testing. Such discontinuations or recalls could adversely affect the Company’s costs, testing volume and revenue.
The commercial laboratory industry is subject to changing technology and the introduction of new and improved test offerings. The Company’s success in maintaining a leadership position in genomic and other advanced testing technologies will depend, in part, on its ability to develop, acquire or license new and improved technologies on favorable terms and to obtain
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appropriate coverage and reimbursement for these technologies. The Company may not be able to negotiate acceptable licensing arrangements, and it cannot be certain that such arrangements will yield commercially successful diagnostic tests. If the Company is unable to license these testing methods at competitive rates, its R&D costs may increase as a result. In addition, if the Company is unable to license new or improved technologies to expand its esoteric testing operations, its testing methods may become outdated and testing volume and revenue may be materially and adversely affected.
In addition, advances in technology may lead to the development of more technologies, such as point-of-care testing equipment, that can be operated by healthcare providers in their offices or by patients themselves without requiring the services of commercial laboratories. Development of such technology and its use by the Company’s customers could reduce the demand for its laboratory testing services and the utilization of certain tests offered by the Company and negatively impact its revenues. Similarly, application of artificial intelligence to testing could reduce demand for the Company’s services, or competitors could adopt use of these technologies and derive benefits from them sooner than the Company.
Manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care laboratory equipment to physicians and by selling test kits approved by regulatory agencies for home or physician office use to both physicians and patients. Increased approval and use of such test kits could lead to increased testing by physicians in their offices or by patients at home, which could affect the Company’s market for laboratory testing services and negatively impact its revenues.
Changes or disruption in services, supplies, or transportation provided by third parties have impacted and could continue to impact or adversely affect the Company’s business.