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#First of all, many hospital outreach labs that we look at and we have purchased have a larger percentage of the business with Medicare.
So we do take into consideration what the Medicare rates will be in our evaluation of the business.
Second, if that is true then we believe this could be a further catalyst of more outreach businesses interested in looking at their options.
What we've said, we have a nice M&A pipeline many of those assets that we're considering are hospital outreach assets ---+ and we are encouraged by it.
And we still believe with the projections of what we have for rates that the cost synergies will be realized by bringing their volumes into our infrastructure, we can build a nice business case related to the cost synergies associated with those acquisitions.
It's been a deliberate part of our strategy.
It's key to what we believe will happen at the marketplace that is more hospitals relying on us for their laboratory services.
In the second part of our working with hospitals.
Our hospital outreach opportunities where we help them with their inpatient laboratory.
We're working on a number of very large opportunities there and we hope to share some of that with you in the next few months and going into 2016.
So stay posted, but we are encouraged by the progress and I think all the change that we see happening in healthcare in general is going to be a further catalyst for more interest in what we have been talking about for several years.
That's a large driver certainly, <UNK>, but the other one is if you recall after the first quarter when we had a little more impact from weather than we had anticipated, at that point I shared that for us to get towards the upper end of the range we would've had to execute some meaningful M&A.
So while we went in to the year thinking that we could do the 2% to 3% without any M&A, after the first quarter headwinds we had based on weather, especially in the Northeast and in Boston specifically record snowfalls, where we have a very important share in a large portion of our business was going to take some M&A.
So as you've seen we've announced two deals this year.
One of them just last night, Superior and then MemorialCare.
Those are not large enough at this point and were not done early enough to contribute significantly in 2015.
So therefore a combination of a little bit of the unexpected volume softness in Q3 and not getting a deal done---+ large enough deal in a timely fashion is really the two drivers.
Yes, it is still early but we're encouraged.
We closed in July.
We've consolidated our business into one Q Squared Solutions.
We are now working through the integration that we put in place.
We still believe there's a nice business case of a creation opportunity for the joint venture now that we'll realize 40% of in subsequent years, so we're still encouraged by that.
And then second to your point, the days are still early but this market has consolidated and we're now in a smaller subset of companies that are addressing the marketplace.
And we believe that now with Quintiles and us working together we have a stronger presence with pharma and we're optimistic about the prospects.
So as that develops and we have some opportunities to talk about as far as wins within the joint venture we will ---+ and I'm sure Quintiles will as well but it is still early with that.
We are encouraged.
Thank you.
Thanks for the question, <UNK>.
I'm sure you recall that at the Investor Day in November I talked about ---+ and <UNK> talked about, the fact that we foresaw 2% to 5% revenue growth through 2017.
1% to 2% coming from M&A so an organic level of growth of 1% to 3%.
And earnings growth, not earnings per share, but earnings growth of 8% to 10%.
And that was going to be fueled by three drivers.
One was going to be some of the continued synergies and leverage we would get out of the transactions we executed into 2014 carrying into 2015.
The second driver was our Invigorate program, which moving our goal from $700 million in run-rate savings to $1.3 billion.
And we didn't lay out how that would drop through by year.
But given the size of that growth in savings and efficiencies, we talked about the fact that contrary to the past several years it would be large enough to not just offset the headwinds that Invigorate had paid for in the earlier years.
You know, the annual wage inflation and some sort of price erosion but actually would contribute to the bottom line and that would be significant.
And then yes the third lever was as we return to organic growth that there's a fairly high drop through and that would help us to leverage our earnings growth faster than revenue as well.
Those are the three levers.
And while were a little bit disappointed in the softness of Q3, we have grown.
As <UNK> pointed out, revenue was minus 400 basis points in 2013, minus 200 last year and plus 100 this year.
So we are growing and we are getting some leverage.
And we expect to continue that's progress.
Long winded answer but while we haven't given any guidance for 2016 yet, the outlook I laid out would suggest yes we are confident that we will continue to grow our earnings faster than our top line.
<UNK> just a follow up with that.
I said in my introductory comments we continue to believe that we can deliver on that goal we set out which is the additional savings opportunity.
We exited 2014 with $700 million run rate savings.
We said there's another $600 million.
The goal is now $1.3 billion.
We are nicely on our way.
We see that reflected in the results.
But I would like to also underscore another thing which you have seen in the last couple of quarters.
And that is, the emphasis we have in our strategy is to continue to focus our energy and our investors on a higher growth portion of our portfolio.
The richer portion of our portfolio which is more the advance esoteric genetic fee services.
We have said that is growing nicely.
We see that reflected in our revenue per req.
So that headwinds that we've seen before in the last two quarters we haven't seen.
So we feel good about the progress that we're making on it as well, to make sure that we get a better yield in our portfolio than what we've seen in the past.
So you put all of that together, coupled with the M&A just to underscore what <UNK> said.
We believe that the 2% to 5% growth for this business over a three-year period is solid.
And we believe the 8% to 10% growth in earnings ---+ real earnings in operating income is achievable.
We're confident we can continue to do that as we go forward.
I will begin with this and alternate to <UNK> on the returns and how that affects our goals we have laid out.
First of all it is both.
It's both managing hospitals in-patients laboratories in some form.
In some cases it might not be entirely but some portion of it.
And then finally it is helping them with their outreach business.
And in some cases we would it acquire their outreach business, which we have done for the last three years.
And there so much in healthcare goes you see one strategy, you've seen one strategy.
So we've engaged with the C suite around their lab strategy.
When this goes well we are their lab partner going forward.
We've demonstrated this already with a number of our joint ventures we have, and a number of the outreach businesses we've acquired.
We're clearly their lab partner going forward, and I think this is a direction that we'll see more of in the future as the healthcare system in this country continues to evolve.
Now with these potential deals around what we call laboratory professional services, and also outreach, they do effect our earnings and growth rate differently and I think you are referring or asking the question about return on invested capital.
So <UNK>, could you give us some perspective on both sides of the growth with hospitals.
Certainly.
Thanks for the question, <UNK>.
Let's start with the professional laboratory services.
What we've talked about in the past is this is really organic.
There is not a significant capital outlay.
It might be a little bit of capital upfront as we transition some of the volumes into our labs and out of their labs.
But it's not anything of significance.
It is lower margin versus buying someone's outreach business where we're capturing all of the margin on a go-forward basis.
The way these deals work is given our economy scale in our efficiencies we can save them significantly enough money to get them to sign a multi year contract with us to perform that service for them and we basically split that savings with them as part of the negotiation, but we don't have a large capital outlay.
So from a ROIC perspective these deals, while lower margin than our current business, are very attractive on a ROIC basis.
Again, as I said, it's a source of organic growth that largely was unaddressable previously.
So it is getting into a market and area and inpatient and outpatient that is a new source of growth for us on the top line.
On the outreach, we certainly expect to continue to pursue such deals.
We talked about how the economics work very well.
They are basically paid out through cost synergies.
We've demonstrated the ability to do that successfully.
We know how to do that.
And we think is excellent for our shareholders.
It is part of the 2% to 5%.
So when we talked 1% to 2% of M&A, it is really those outreach businesses ---+ small tuck in, fold in outreach or small labs for that matter, but a portion of that is going to be outreach.
We can fund that within our operating cash flow and still maintain our commitment to deliver the majority of our free cash flow to our shareholders.
So, I wouldn't anticipate a significant shift in capital intensity to drive that strategy.
Certainly the professional laboratory service business is not going to require a ton of capital.
Finally on the outreach and any other M&A we talked about the three metrics used.
One of them is that these need to be accretive to our ROIC plan of record by year three, so we're very focused and make sure that even the acquisition that they are growing our ROIC.
Thanks.
Sure <UNK> I will take this to start and I'm sure that <UNK> will add to it.
First of all, if you look at the market there is a bunch of puts and takes as you describe it.
First of all we believe the Affordable Care Act and the number of uninsured decreasing will add more lives to the system.
We have said consistently that when people have insurance we believe in what we do in that way there for that would be good for us.
Albeit what we have seen so far for lives in the system from the Affordable Care Act are much less than what we anticipated back three years ago, as we all know.
But we said in the past two quarters that we are starting to see some of those Medicaid lives enter the system so that is providing some volumes and most people would agree that they will be increasingly less uninsured in this country in the years ahead.
That is what we modeled in our expectations going forward.
So that's number one.
Number two is, there is ---+ there continues to be a push for higher deductible insurance programs offered to employer-based healthcare offerings in this country.
We believe it's about 40% of employer sponsored healthcare is high deductible and that clearly has pushed pressure on utilization.
I've said before that those of us blessed with being reasonably healthy are paying for the majority of our healthcare out of our own pockets.
So people have thought twice about using the system, and most people would agree over the past seven years or so that some portion of the utilization softness has been caused by this effect.
We believe actually that, that will continue.
There will be more and more pressure on employers.
They'll be pushing more responsibility to employees.
Employees will consider when and where they use the healthcare system.
And that will have an effect on utilization.
With all that said, we think that's actually a good thing for our business because we offer such a strong value proposition.
And we believe price transparency and the visibility of the wide variation on pricing in the system is actually a good fact for us given our value in our prices in this industry are so attractive.
So that's the second effect.
The third effect is we do have an aging population; us baby boomers.
We already see that in our results.
We talked about infectious disease growing.
All seeing some nice growth in hepatitis C, as an example.
We're all baby boomers are encouraged to get tested given the new drugs of the marketplace to cure that.
The age of the baby boomers [slug up] our market place will continue to grow; the population grows.
So you put all that math together and we continue to believe that in the mid-to long-term this industry that we're in should be growing in value 2% to 3%.
We believe there will be more value per test going forward given the advancements in the introduction of the new genetic base services we have demonstrated in our results as well.
We believe that there are some sub markets that are growing faster than that, but some of that 2% to 3% is the dynamics of what is happening overall in healthcare as well.
Based upon more people with insurance, higher deductibles for those of us to get our healthcare from our employers, the aging population, and the growth in the population.
So hopefully that provides the perspective you're looking for what we see in the macro market overall.
Great question.
First of all, we're very encouraged about the prospect ---+ the opportunity with Inovalon.
The reason why that we think this is so encouraging and why Inovalon thinks it's so encouraging is our presence in healthcare.
You think about our presence, particularly in the [worked for] healthcare, we have over 200,000 placements of our order entry results reporting system, Care360.
We interface with all the EMRs you can think of the planet.
The large EMR companies like Epic, Cerner, and McKesson, and also the small homegrown activities.
We sell to 50% of physicians in this country, we sell to 50% of hospitals.
So we're right in the center of the ecosystem of healthcare.
So that's why we have a large presence.
And the nice thing about that is what we will do with Inovalon is attach their capability into the workflow of the physician.
So it is not something that they have to disrupt their workflow to get access to.
So we're working on the actual integration of their applications into our applications.
So the physician or administrative when they are working through the work up on the patient and the completion of gathering all of the information of the patient will be able to access all of that information.
As far as go-to-market, like so much in healthcare it is obviously complicated.
We have people that call on physicians, both primary-care physicians and all specialists.
That portion of our sales force will be informed and be talking to the customers about this prospect.
We also have an information sales force.
These are highly specialized people to get into more of the content associated with us and Inovalon, as well, is providing some capabilities on the ground level as well as broadly support the sale as well from a real specialists perspective.
So it is a hybrid sales approach but we are encouraged about the prospects for us and Inovalon going forward, and we have launched this in the fall to get off to a good running starts going into 2016.
Hello Bob.
I appreciate you saying that Bob.
We believe we bring a lot of value to the table.
On the same side they bring all of the content to the table and there's a lot of content.
They built a nice capability with the quality metrics application.
The collection of all claims data is real time.
So there's some very sophisticated approaches to gathering the information and serving that up to physicians.
So we think the 50/50 split fairly recognizes the value we deliver and the value they deliver and it's a good partnership.
We think that's a fair split but we are happy about the value you think that we bring to the table because we think it is a good opportunity for us.
Bob, real quickly the analog might be some small independent lab came up with a new esoteric test.
So they created the whole test.
They didn't have the ability to sell it to the health plans as well as we could.
And to do the pull through with <UNK>'s said, our coverage because it is going to be ordered basically like a CPT, like a test.
So I think you would say okay 50/50 is pretty fair.
They did the innovation, obviously they did the IP, et cetera, and we are really the commercial arm to help sell that and educate people on the value and the opportunity.
First of all, the reports vary based upon what you're asking for.
Some of the patient history are nice, well presented summary of patient history.
The quality metrics are somewhat of a simple ---+ this is what you need to do to close the gaps in care, related to quality metrics, to qualify for stronger HEDIS scores, your star ratings ---+ so that is another report.
As far as the pay for here in many cases it will be the risk taking organization, the insurance company.
It would be the person that has the motivation to do this.
But in other portions of this, particularly related to HEDIS scores it could be the provider organization that's clearly incented to do a better job of closing the gaps of care and see the value, and therefore will pay us for this.
In terms of the investment required is a little more complicated than adding a couple of test codes to our compendium.
It's not significant investment required to get this capability in our Care360.
Pretty much all organic <UNK>.
In the quarter M&A was [rounding].
Less than 10 basis points.
As we said earlier we expected some M&A sooner.
We have gotten a nice funnel for M&A.
And you will see that in subsequent months.
But the third quarter was pretty clean.
But it was the fourth consecutive quarter of organic revenue growth.
Okay.
Thanks everyone for joining.
As we have shared, we had another solid quarter.
We are making good progress executing our strategy.
We do appreciate all your support and interest in our Company and have a great day.
