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Welcome to the Quest Diagnostics Third Quarter 2025 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question-and-answer session that will follow, are copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the written consent of Quest Diagnostics is strictly prohibited. Now I'd like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Please go ahead.
Thank you, and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer and President; and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q and the current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates. Now here is Jim Davis.
Thanks, Shawn, and good morning, everyone. Our third quarter performance underscores strong demand for our clinical solutions, our diligent execution to meet customer needs and our commitment to advancing our strategy. We delivered robust top and bottom line growth, extended our presence in key markets, forged new collaborations with leaders across health care and expanded our broad portfolio of diagnostic innovations to advance better health. Revenues grew 13.1%, including 6.8% organic growth driven by broad-based adoption of our clinical innovations, contributions from acquisitions and growth in our consumer channel as we position Quest as the preferred lab engine inside top wellness brands. We also announced an agreement with Corewell Health to form a lab services joint venture serving the state of Michigan. In addition, we will deploy our comprehensive Co-Lab solutions across Corewell's nearly two dozen hospitals supporting quality, innovation, access and productivity.
Given our strong performance year-to-date, we are again raising our full year 2025 guidance. I'd like to take a moment to comment on efforts to reform PAMA. In September, congressional leaders introduced bipartisan legislation called the Results Act. Results is a smart, pragmatic and fair reform that seeks to correct the flaws of the original PAMA implementation. It would deliver foundational payment reforms for clinical labs by dramatically improving the accuracy of data used to set reimbursement under the clinical lab fee schedule. If Congress does not reform or delay PAMA this year, American labs will be forced to absorb significant payment cuts next year, threatening the ability of American seniors to access critical lab testing. We are working in partnership with our trade association ACLA and with Congress to secure meaningful PAMA relief before the new year. Before turning to our third quarter results, I'll share some highlights on how our strategy is enabling growth.
We are focused on delivering solutions that meet the evolving needs of our core clinical customers, physicians and hospitals as well as customers in the higher growth areas of consumer, life sciences and data analytics. We enable growth across our customer channels through faster-growing advanced diagnostics in five key clinical areas, which are advanced cardiometabolic, autoimmune, brain health, oncology and women's and reproductive health. In addition, acquisitions are a key growth driver, and our strategy emphasizes purchases of accretive hospital outreach and independent labs. Finally, we are focused on driving operational improvements across the business with the deployment of automation, AI and other advanced technologies for improved quality, productivity and customer and employee experiences. Here are some updates on the progress we have made in these areas during the third quarter.
In the physician channel, we delivered approximately 17% revenue growth with organic revenue growth in the high single digits. We experienced broad-based demand across our clinical solutions supported by focused commercial execution and expanded health plan access in several states, including Colorado, Georgia, Nevada and Virginia. In addition, we continue to expand business and enterprise accounts, including functional medicine providers who utilize comprehensive laboratory testing to improve health and wellness. During the quarter, we completed our acquisition of select clinical testing assets from Fresenius Medical Care, which will enable us to offer lab testing used in dialysis delivery to independent dialysis clinics in the U.S. More significantly, under a separate enterprise agreement, we also began to roll out clinical lab testing to Fresenius Medical Care's dialysis centers which serve about 200,000 dialysis patients annually in the U.S. We expect to finish scaling these services in early 2026.
We look forward to processing these tests during periods of the day when we have open capacity, enabling us to further optimize the productivity of our labs. In the hospital channel, revenues grew low single digits with collaborative lab solutions driving our growth in the quarter. We offer hospitals many flexible options for accessing our leading science, innovation and scale. These include reference testing, our Co-Lab solutions, outreach acquisitions and other business relationships, all of which provide meaningful improvements in quality, patient access and cost efficiencies. During the quarter, Quest and Corewell Health, a top health system announced plans to establish a laboratory services joint venture in Michigan with an advanced state-of-the-art lab serving the entire state. In our largest implementation of Co-Lab solutions to date, Corewell Health will utilize our comprehensive offering, including reference testing, lab analytics, supply chain management and blood management.
Once we fully scale across Corewell's 21 hospital labs next year, we expect annual revenues from Co-Lab solutions to be approximately $1 billion. Turning to our consumer channel. We are excited by the increasing momentum we saw in the third quarter as we strengthen Quest as the preferred lab engine of consumer health companies. We are delivering our extensive menu and technology inside top consumer health and wellness brands. For example, our collaborations with WHOOP, the human performance company and OURA Health, maker of the world's leading smart ring, enables seamless access to our lab testing services and results in their mobile apps. In the quarter, we also saw strong double-digit growth from our questhealth.com consumer-initiated test platform. In Advanced Diagnostics, we delivered double-digit revenue growth across several clinical areas of our portfolio. This includes advanced cardiometabolic and endocrine as well as autoimmune disease testing with our analyzer autoimmune solution.
Analyzer experienced strong growth as primary care physicians increasingly utilize this solution to direct high-risk patients to specialty care. In brain health, demand for our Quest AD-Detect blood test for Alzheimer's disease accelerated and more than doubled in the third quarter. New guidelines introduced in July recognized the value of blood-based biomarker testing in assessing Alzheimer's disease pathology in patients with cognitive impairment. At the same time, we continue to publish evidence on our AD-Detect test, including a study published this month that found two of our innovative panels provide confirmatory accuracy for aiding Alzheimer's diagnosis. In oncology, during the quarter, we received breakthrough device designation from the FDA for our Haystack MRD test. This milestone reinforces the high caliber of our cancer monitoring innovation and opens avenues for developing companion diagnostics.
We also commenced separate trials with Mass General Brigham and Rutgers Cancer Institute to further research Haystack MRD's clinical utility as a guide in making postoperative therapy decisions. We are also pleased that HPH, a major lab provider in Hamburg, recently introduced an in-house MRD test in Germany based on a license to our Haystack MRD technology. We are highly focused on delivering innovations that can identify risk of cancer and other diseases in early preventable stages. During the quarter, we announced collaborations that leverage Quest's national scale in phlebotomy and connectivity to broaden access to cancer screening liquid biopsy tests, including Guardant's Health Shield's test for colorectal cancer. Turning to operational excellence. We continue to target 3% annual cost savings and productivity improvements through our Invigorate program. We are deploying innovative automation and AI technologies, including digitizing processes to improve quality, productivity and customer and employee experiences.
During the quarter, we announced Epic as our technology partner for Project Nova, our multiyear order-to-cash transformation. By deploying a suite of Epic solutions, including Beaker, MyChart and Care Everywhere, we will deliver deeper, more connected insights with easier, faster and more efficient experiences. Combining these leading technologies with our breadth and scale will help all patients and providers regardless of their EHR provider, get the information they need to make critical care decisions. We are in the early planning stages of this work and look forward to sharing more about the implementation on future calls. Our growth and productivity gains in the quarter demonstrate that we are executing our strategy and serving our customers and patients with both energy and purpose. And now Sam will provide more details on our performance and 2025 guidance.
Thanks, Jim. In the third quarter, consolidated revenues were $2.82 billion, up 13.1% versus the prior year. Consolidated organic revenues grew by 6.8%. Revenues for Diagnostic Information Services were up 13.5% compared to the prior year, reflecting organic growth in our physician, hospital and consumer channels, as well as recent acquisitions. Total volume measured by the number of requisitions, increased 12.5% versus the third quarter of 2024, with organic volume up 3.9%. Recall the impact of weather and the CrowdStrike global IT outage was a headwind on our volume in the third quarter last year. We estimate that our volume in the third quarter of 2025 experienced a benefit of approximately 50 basis points due to the impact from those disruptions in the same period last year. Total revenue per requisition was up 0.8% versus the prior year as an increase in organic revenue per requisition was substantially offset by the impact of the LifeLabs acquisition which carries a lower revenue per requisition.
On an organic basis, revenue per requisition was up 3% in the quarter versus last year driven primarily by an increase in the number of tests per requisition and test mix. Unit price reimbursement remained consistent with our expectations. Reported operating income in the third quarter was $386 million or 13.7% of revenues compared to $330 million or 13.3% of revenues last year. On an adjusted basis, operating income was $458 million or 16.3% of revenues compared to $385 million or 15.5% of revenues last year. The increase in adjusted operating income was due to recent acquisitions and organic revenue growth, partially offset by wage increases and higher-than-expected employee health care costs. Reported EPS was $2.16 in the quarter compared to $1.99 a year ago. Adjusted EPS was $2.60 versus $2.30 the prior year. EPS in the third quarter was impacted by higher net interest expense versus the prior year.
Foreign exchange rates had no meaningful impact on our results. Cash from operations was $1.42 billion year-to-date through the third quarter versus $870 million in the prior year. This year-over-year increase of 63.1% was driven by higher operating income, favorable working capital due to timing of receipts and disbursements, a one-time CARES Act tax credit and the cash tax benefit related to recent tax legislation. Turning now to our updated full year 2025 guidance. Revenues are expected to be between $10.96 billion and $11 billion. Reported EPS is expected to be in a range of $8.58 to $8.66 and adjusted EPS in a range of $9.76 to $9.84. Cash from operations is now expected to be approximately $1.8 billion, and capital expenditures are expected to be approximately $500 million. Our 2025 guidance reflects the following considerations. Our updated revenue guidance assumes approximately 4.5% to 5% organic revenue growth, in addition to contributions from acquisitions completed in 2024 and announced to date.
It does not assume any contribution from prospective M&A. We are making investments in 2025 related to Project Nova, which we expect will modernize our entire order-to-cash process. We expect these expenses to ramp in the fourth quarter. Operating margin is expected to expand versus the prior year. Our updated operating cash flow guidance reflects a cash tax benefit related to recent tax legislation as well as favorability in working capital.
Thanks, Sam. To summarize, our third quarter performance of robust top and bottom line growth underscores strong demand for our clinical solutions, our diligent execution to meet customer needs and our commitment to advancing our strategy. We formed collaborations to support future growth, including with Corewell Health in Michigan, top consumer health brands and Epic for Project Nova. Given our strong performance year-to-date, we are raising our full year 2025 guidance. Finally, I want to thank our more than 55,000 colleagues for their hard work this quarter. They are the force that delivers on our purpose to create a healthier world, one life at a time. Now we'd be happy to take your questions.
分析師問答
Our first question comes from Patrick Donnelly with Citi.
Jim, maybe just on the backdrop, the utilization backdrop, it looks like it remains elevated. What are you guys seeing there and expectations into year-end? And then just a quick follow-up for Sam. Maybe on the PAMA side, latest expectations, what you're hearing there and the potential offsets you would have as we head into '26, maybe just the probability of how you're thinking about that.
Yes, thanks, Patrick. Regarding utilization, our raw request volume increased by 3.9% and our organic revenue per request rose by 3%. Let me elaborate on these points. First, on the request volume, we're back in network with Elevance in key states like Nevada, Colorado, and Virginia, where we're gaining market share and momentum as the year goes on. This increase in volume is evident in those states. Additionally, we're also back in network with Sentara in the Virginia area, which further contributes to the 3.9% organic request growth. Moreover, we've seen a strong mix of tests, with autoimmune testing and advanced cardiometabolic testing rising significantly, and our brain health volumes have more than doubled this quarter. This has contributed to both tests per request and overall test volume. Lastly, our consumer health business has been very robust, growing between 30% and 40% on a year-to-date basis. Our partnerships with companies like Function Health are also driving growth in this area. Although the partnerships we announced this quarter did not impact our volume immediately, we expect our collaborations with WHOOP and OURA to add to our consumer health volume moving forward. Therefore, I anticipate that the utilization levels will continue at the same pace we've seen in Q3 as we approach Q4.
Yes. Regarding PAMA, it's challenging to assign probabilities. The Results Act has been introduced, but we believe it will be difficult to pass. However, there is a higher likelihood of a delay with PAMA than the Results Act actually being approved. We remain hopeful about a PAMA delay, although it's tough to estimate odds at the moment. As for the impact on profit and loss, we've previously mentioned that if PAMA returns, it will have a $100 million impact next year. We will be able to offset some of this amount, but not the majority. We can manage the pace of certain investments next year, allowing us to adjust to a portion of this impact if PAMA comes back.
Our next question comes from Michael Cherny with Leerink Partners.
Maybe if I can build a little bit more on the mix in the quarter and how you think about that relative to jump-off point into next year relative to the LRP. As you look back versus what you outlined in March, are some of these aspects of wellness testing and specialty testing performing above expectations, in line with? And how are you thinking about framing those in terms of the contribution rate they can provide relative to where you laid out the LRP for overall organic volume, organic revenue growth back in March?
Yes. Compared to the expectations we set in March, both our direct consumer channels and our partnerships are performing slightly better than anticipated this year. Our direct channel is doing very well. In addition to wellness testing available through that channel, we see what I would call episodic testing. This includes tests for STDs, tick-related issues, and allergies, which people prefer to keep private. For various reasons, they choose to come to us directly. Our direct channel is exceeding our expectations. You can see what companies like Function Health, WHOOP, and OURA are doing on social media, which is also helping our indirect channel in consumer health. There is significant momentum building nationwide as people take charge of their own health. They are turning to companies like Quest Diagnostics for access to tests that may not be available through their traditional health plans, or some tests they want might face rejection. This is why they are utilizing consumer health channels. As we enter the fourth quarter, and as we continue into early next year, we expect these consumer channels to keep gaining momentum.
Michael, if I take it back to your comment compared to March, or to compare to March, largely the assumptions are still intact versus what we shared during our Investor Day in March. The mid-single-digit revenue growth, including the contribution of 1% to 2% from M&A, high single-digit EPS growth, the margin expansion over the 3 years that we shared. All those, I would say, are pretty intact. I mean there are some definitely positive things that we're seeing around utilization, around the consumer business, around the wellness business, all the things that Jim shared. And also on the revenue side, the test per req and mix improvements that we're seeing that have a direct impact on contribution and operating margin. So all of those are really positive but not to change the long-term outlook that we provided.
Our next question comes from Elizabeth Anderson with Evercore ISI.
I have a question about how you’re approaching the fourth quarter margins. Sam, you mentioned the increase in expenses related to Project Nova, which you’ve previously discussed. Can you elaborate on some of the other factors influencing margins? It’s clear that you’ve experienced significant margin growth recently, and I want to ensure I grasp all the contributing factors as we look toward the fourth quarter and into 2026, excluding any potential PAMA impact.
Sure, I'm glad to discuss this. Starting with the third quarter, we experienced strong operating margins of 16.3%, showing healthy growth compared to the same period last year. This performance was largely driven by utilization and the business mix, affecting revenue per request and the mix of tests. However, we did face some challenges in operating margins in the third quarter due to higher group health expenses, particularly our employee medical costs, which were above our expectations and had a notable negative impact on margins—approximately 40 to 50 basis points. We anticipate these elevated costs to continue into the fourth quarter, and while it's too early to comment on 2026, we will need to review all our group health plans before providing guidance for that year. For the fourth quarter, we do expect an increase in Nova investments, which were shifted into this timeframe due to the signing with Epic. Additionally, regarding seasonality, we typically see operating margins in the fourth quarter drop by about 50 to 100 basis points compared to the third quarter, a trend consistent with what we observed before the COVID pandemic.
Elizabeth, just to summarize, on a year-to-date basis, our OM rate is up 60 basis points. And so it really does point to our productivity efforts, our Invigorate program continues to pay dividends for us. There's no letup. There's never an end goal. The goal always moves forward, and we expect those productivity efforts to continue in the back half of the year and into next year.
Our next question comes from Kevin Caliendo with UBS.
Sam, I know you just said you don't want to talk about '26, but I have to ask a little bit just thinking about now that we sort of understand the jump-off point, we understand your LRP. PAMA aside, what other sort of headwinds and tailwinds should we be contemplating? I know there was some other investment spend that was planned. Corewell might be incremental. Is there anything sort of fundamentally or company-specific we should be thinking about when thinking about '26 relative to the LRP?
Yes, Kevin, let me start, and then I'll turn it over to Sam. We've discussed volume and utilization trends, and we feel optimistic about the growth in test per requisition and revenue per requisition continuing into next year. Our investment in advanced diagnostics, including autoimmune testing and brain health, has doubled in the quarter, indicating a positive trend in volume and utilization. As mentioned earlier, we have begun integrating testing from Fresenius, which includes over 200,000 dialysis patients across more than 3,100 dialysis centers. We're in the early stages of this integration, in addition to acquiring lab testing from other third-party dialysis centers, and we expect to grow this segment next year. The Co-Lab portion of Corewell will kick off in the fourth quarter and is set to expand across all 21 hospitals by 2026. Additionally, we're seeing strong activity in the consumer health channel. Regarding headwinds, we have discussed the impact of PAMA, the expiration of health exchange subsidies, and uncertainty surrounding that situation, which remains a significant concern amid the current challenges. Other headwinds include a tough environment for hospital reimbursement and pricing pressures on the hospital side. As Sam mentioned, we anticipate a ramp-up of Nova investments as we progress through next year.
From a margin perspective, if I consider some of Jim's comments and provide some insights, I won't specify any percentages or numbers at this moment. The healthy utilization environment is expected to continue supporting margin expansion. Similarly, the revenue per requisition and test mix will contribute to margin improvements. I believe the Invigorate program will maintain its productivity and cost reduction goals of 3% next year, which will also serve as a tailwind. PAMA remains uncertain, so I will set that aside for now as a possible headwind. The increasing investments in Nova will lead to higher expenses next year, but this aligns with what we communicated back in March during the initial announcement of this program. There are no new costs to report. Regarding the investments planned for next year, including Nova, we can adjust and time those to mitigate any negative pricing effects resulting from PAMA.
Our next question comes from Jack Meehan with Nephron Research.
I wanted to talk about cash flow. So it's been really strong conversion so far this year, and you increased the guide here to $1.8 billion, up $250 million. Maybe for Sam, just are there any one-timers you would call out this year besides kind of the CARES Act payment? I'm just trying to think about the puts and takes on this line into 2026 and understanding what the right baseline might be to work off of.
Yes. Thanks, Jack. So yes, cash flow has been strong. I mean we took up operating cash flow, as you indicated, to $1.8 billion as our guide so an increase of $250 million. I think we're seeing some increases and some positives related to the strength of the business, also the timing of receipts as well and collections. But there are one-timers in that you should not expect to necessarily continue. You called out the CARES Act payment of $46 million. That is a one-timer that we don't expect to repeat next year. And then there are onetime benefits related to the recent tax legislation, the One Big Beautiful Bill Act that help us in 2025 that don't necessarily produce the same magnitude of benefit in 2026. One is related to the acceleration of bonus depreciation and the ability to take deductions on that and gives you a cash tax benefit. And the other one is also related to R&D, accelerated R&D expenses or expensing R&D and being able to take a tax deduction on that as well, which helps you from a cash tax benefit, too. So those, in total, I would call out between sort of just over $100 million, $100 million to $130 million or so of benefits in addition to the $46 million of CARES Act.
Yes. Jack, the other thing I'd point to is the beauty of the consumer channel, it's a direct cash business. You get payment at the time of order and there's no patient concessions or bad debt. So to the extent we continue to grow that consumer channel, it certainly helps bring in the cash, the timeliness of the cash and the certainty of the cash.
Our next question comes from Luke Sergott with Barclays.
I would like to learn more about the consumer health momentum related to your new partnerships with WHOOP and OURA. How should we view this partnership? What types of tests are being marketed, and what tests will you be focusing on? Additionally, what benefits do you anticipate to maintain elevated requisition volumes in that sector?
Yes. So I can talk about each of those. First of all, let's start with WHOOP. They have somewhere between, I don't know, 1.5 million and 2 million WHOOP users in the country. WHOOP announced that there were roughly 350,000 people that had signed up for advanced labs. Now how quickly those people that signed up, how quickly they convert and actually get lab testing done, it's very hard to tell at this point. The faucet is open. People have come forward. So we are seeing demand from that. You've seen the pricing that WHOOP announced in the marketplace, $199 for a limited panel of roughly 65 biomarkers. And if you do that twice, it's twice in a year, it's a $350 charge. OURA, on the other hand, we're still in the final stages of the technical integration with OURA. OURA is much bigger in terms of users. They've got about 5.5 million globally. Not 100% how many are in the U.S., but probably 60-ish, 65% are probably U.S.-based.
They've chosen a more limited panel, a $99 a panel that has roughly 50 biomarkers on it. And so we don't have an indication of a backlog yet or anything like that. And then obviously, again, our own direct channel has put up growth numbers that are really impressive on a year-to-date basis between 30% and 40%. And then obviously, Function Health continues to grow, and we are the sole lab that does all the testing for Function Health. So put all of those pieces together, and it really points to a segment that we're getting terrific growth.
Our next question comes from David Westenberg with Piper Sandler.
Congrats on a good quarter. So on the consumer channel, we are seeing a lot of great growth in this channel. We're also seeing some ads for some of the home delivery blood testing kits. Do you believe that could be a key part of consumer health? And then are there any strategies to participate in that market?
Yes. First of all, there are strategies for us to participate. There are devices available today for self-collection for both STDs and HPV. Currently, these collections must occur at one of our patient service centers. However, in the future, we expect consumers and patients to be able to perform these collections at home. We are collaborating with a third-party provider on mobile blood collection kits that extend beyond fingerpricks. We don't believe that method is optimal for collecting enough blood for the tests we typically perform at Quest Diagnostics. However, over time, these self-collection devices will improve, and as they do, we will also participate in that space.
Next question comes from Erin Wright with Morgan Stanley.
So in the 10-Q filing, you reiterated the expectation around the impact on the One Big Beautiful Bill and the expiration of ACA subsidies, I guess, in that 50, 60 bps range. I guess, how would you break the 2 of those out if we do get some sort of more favorable negotiation on the exchange subsidies? And then a completely separate question, but can you speak a little bit about the partnership with Epic a little bit more? I guess, can you talk a little bit about the genesis of that relationship and the nature of it and when we will hear more on that front, too?
Yes. Thanks, Erin. This is Sam. So on the impact in 2028 that you call out that we disclosed in our 10-Q, the way I would think about it is the majority of that is really related to the health insurance exchanges and the potential expiration of those subsidies and not being renewed. So that roughly, let's call it, 60 basis points. I would say about at least 40 to 45 basis points of that is coming from the exchanges and the rest driven by Medicaid. Medicaid ramps over time to get to a certain impact by 2034. But the impact on '27, '28 is fairly minimal still. And Jim, talk about the other.
Yes. On the Epic implementation, so the foundational element of this is the conversion and upgrading of all of our laboratory information systems to their LIS product, which is called Beaker. We're going to start that process. Obviously, a lot of planning is taking place right now. Planning will continue into 2026. We plan on starting those implementations more in our esoteric sites and then rolling it out across the regions over the next several years. We will also standardize. Today, we have the application called MyQuest, which allows patients to make appointments, view your test results, pay your bills. And that application will be upgraded to what most people know is MyChart in the Epic world that provides a lot of benefits, including patients will be able to see all of their information regardless if it's from Quest Diagnostics or a health system on one MyChart site, if you will. And so it provides the integration of lab work with other medical records that they may be getting from their physicians, their health systems.
And so we believe that really has tremendous benefits as well. So as we've described in the past, it's a 5- to 7-year implementation timeline. And as Sam has said, we're going to pace that appropriately. It's a lot of change both internally for our own employees, a lot of change for our customers, and we're going to be very thoughtful and methodical as we embark on this change going forward.
Our next question comes from Andrew Brackmann with William Blair.
Jim, you highlighted some of the work that you're doing, expanding partnerships with some of the cancer screening players that are out there. Can you maybe just sort of talk about those opportunities broadly what they mean for Quest? But I guess more importantly, how do you balance those types of distribution partnerships with potentially doing some of this testing yourselves in the future?
Yes. The first decision we consider is whether we have a test available for that segment of the market. When it comes to some of these early-stage cancer screening tests, we haven't made significant investments in that area. As we've mentioned before, you can order the GRAIL test through Quest Diagnostics. It's included in our offerings and accessible to over 100,000 primary care physicians with IT integration. We also announced a partnership with Guardant for their new blood-based colon cancer test. Again, we don't have a test in that segment, but we're receiving inquiries from our physicians. Thus, it's available on our menu, and physicians can access it. There is complete IT integration, and we handle the collections, with the test sent to the Guardant lab for processing. We have collection agreements with other players in the industry as well. Those two tests are part of our offerings, enabling physician offices to order through Quest Diagnostics.
Our next question comes from Michael Ryskin with Bank of America.
You kind of just touched on it there on the advanced diagnostics side and just a follow-up specific to Haystack. If you could just provide an update on the integration and how that's going, just reaffirm some of the comments you made in terms of how it's going to flow into the model in 2026?
Yes. I'll discuss the integration, and Sam will cover some of the financial aspects. It is fully integrated into the company and has become a core part of Quest Diagnostics. The test is performed at our Center of Excellence in Texas, specifically at our Cancer Center of Excellence. The volumes are increasing, and we are optimistic about that. As noted earlier, we are continuously pursuing new and innovative research in collaboration with Mass General Brigham in Boston, the Rutgers Cancer Institute in New Jersey, and several other cancer studies to further strengthen our evidence base. From a reimbursement perspective, we are currently receiving payments from Medicare. Additionally, we anticipate final reimbursement decisions to be announced in November as part of the clinical lab fee schedule, which will be published just before Thanksgiving this year. We are making steady progress, increasing our volume, and have fully integrated this into Quest Diagnostics.
I will discuss the financials and our projections, although I won't provide specific numbers since we are still finalizing our annual planning for 2026. However, we are very excited about this test, which we believe has the potential to become a leading MRD test in the market. We have learned about the necessary commercial presence and the number of representatives we need to support it. We also recognize the investments required in EMR, especially with our spending on Epic and OURA this year. We anticipate that this year will have a dilution similar to last year. Looking ahead to 2026, we expect less dilution compared to 2025. Overall, we are pleased with the market's response to this test.
This question comes from Pito Chickering with Deutsche Bank.
Nice job in the quarter. As we roll forward, the organic growth for next year, if I focus on the number of tests per requisition. Can you refresh us how that grew year-to-date, how we should think about the durability of that growth going forward?
Yes, in terms of tests per requisition, we have noted that it is definitely higher than what we observed before COVID. Without going into too many specifics or detailed numbers, I can say that it has been improving consistently quarter after quarter since 2019. We are currently above 4.2 tests per requisition, whereas before 2019, we were in the range of 3.5 to 4. This ongoing evolution reflects better test per requisition and also an improved mix. The increase in tests per requisition stems from several factors, including physicians gradually adhering to clinical guidelines over time, our clinical franchise strategy, a wider range of available tests, and a shift towards more screening tests like AD-Detect, which is a blood-based Alzheimer's screening test that was not available earlier and is now contributing positively. Additionally, the wellness segment of our business is also enhancing our tests per requisition. All of these elements are beneficial for tests per requisition and revenue per requisition. Looking ahead to 2026, I expect there will still be improvements in revenue per requisition and tests per requisition, but the pace of that improvement is likely to slow down. While I anticipate a positive trend for next year, we will eventually see this improvement decelerate.
This question comes from Tycho Peterson with Jefferies.
I wanted to just probe a little more on the oncology initiatives. I appreciate the color you provided. But I know evidence generation, you're working with some of the academic medical centers for Haystack, I think on head and neck, breast, lung. I guess how do we think about additional indications being introduced for Haystack? And then any thoughts on just guideline inclusion for NCCN? And then separately on Guardant, I think Shield is going to cross $100 million or so in revenues next year. So at what point could that partnership start to get more meaningful? And is that just for colorectal or use an option for multi-cancer with Guardant as well?
Yes. Let me just take the last question first. So first, on Guardant, right now, it is just colorectal. That's what we've agreed to do. That's what we've put up on our test menu. And we expect growth out of that next year. With respect to evidence generation on the Haystack MRD test. So first indications are obviously colon, and we're going after that hard. And I think hopefully, we'll see favorable reimbursement in the fee schedule that comes out in November for that indication. As you mentioned, head and neck are important, and we're doing that research, doing those studies with Mass General. We've got several funded studies on breast and lung as well. We have over 25 studies ongoing right this moment. So the studies get completed. We do the publications. So we expect to continue to get broader and broader based coverage on multiple cancer indications with this test. Look, we're really, really pleased with the uptake of this test by some of the more academic sites that really value precision. They value the sensitivity of the test. They value the specificity of the test. And we're seeing nice uptake from thought leaders in the industry that value these characteristics.
Our final question comes from Eric Coldwell with Baird.
A lot of moving pieces on the margin profile in 3Q and 4Q. You called out the employee health benefits as one of the short-term headwinds. I'm curious about Project Nova and other investments around that. You mentioned some slippage from 3Q to 4Q, an increase in 4Q. Is it possible to size if there's some way to frame these investments relative to last year or relative to original expectations? I'm just trying to get a sense of what the order of magnitude of the impact in 4Q is? And then how that might play out in 2026 in terms of a year-over-year investment comparison?
Thank you, Eric. I can provide part of what you’re looking for, although not all the specifics on the numbers. At the start of the year, we projected an investment spend of about $30 million, with around $10 million earmarked for the LDT regulations and $20 million for Project Nova investments. While the LDT regulations did not advance, we still needed to invest to enhance our organization and reporting capabilities. Most of the $10 million set aside for that has been spent. However, we have not utilized a significant portion of the $20 million allocated for Nova. Some of this will carry over into Q4, mainly due to timing. There won’t be any negative repercussions for 2026 from this; it's purely a timing issue for 2025, which is why these expenses are moving into Q4. Regarding overall spending for Nova, we anticipated around $310 million over the next 6 to 7 years, which includes both operational and capital expenditures. Some of this will affect 2026, but it aligns with what we shared during Investor Day. There have been no changes to those expectations. As I mentioned earlier, depending on factors like PAMA and overall business challenges, we will adjust the pace of our investments as needed, and I want to clarify that.
At this time, I'm showing no further questions.
Okay. Thank you again for joining in. And again, strong performance for Quest Diagnostics. We again thank our 55,000 employees who made this happen in the quarter, and we'll continue to make it happen. Have a great day. Thank you.
Thank you for participating in the Quest Diagnostics Third Quarter 2025 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics' website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on October 21, 2025, until midnight Eastern Time, November 4, 2025. Goodbye.