Welcome to the Quest Diagnostics First Quarter 2020 Conference Call. At the request of the company, this call is being recorded. The entire contents of the 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.I would now like to introduce Shawn Bevec, Vice President of Investor Relations for Quest Diagnostics. Go ahead please.

Thank you and good morning. I'm on the line with Steve Rusckowski, our Chairman, Chief Executive Officer and President; and Mark Guinan, our Chief Financial Officer.During this call we may make forward-looking statements and we'll 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 including the impact of the COVID-19 pandemic 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 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 excluding amortization expense. References to adjusted operating income for all periods excludes amortization expense. Finally, growth rates associated with our long-term outlook projections including total revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates.Now, here is Steve Rusckowski.

Thanks, Shawn, and thanks everyone for joining us today. We are definitely living in extraordinary times. The COVID-19 pandemic has changed the way we all live, work and engage with one another. While the crisis will likely continue to impact our lives in the weeks and months ahead, one thing we can be highly certain of -- we will get through this.So this morning, I will discuss our performance before the crisis hit, the impact the crisis has had in our role in it, and the actions we are taking to mitigate the impact going forward. And then Mark will provide more detail on the first quarter results and our financial position.Our financial performance in the first quarter was off to a strong start in January and February. Through February year-to-date, total revenues grew more than 4%. Total revenues grew more than 6%. Even after adjusting for the calendar benefit and favorable weather in the first two months of the year, organic volume grew more than 4%.However, in March, social distancing and shelter-in-place measures were instituted to combat the spread of COVID-19 and we began to see substantial declines in our business. In the last two weeks of the quarter, we experienced a reduction of volumes in excess of 40%.We saw the impact across all metropolitan markets, not just in hot spots like New York City. In April, volume declines continue to intensify as we are seeing signs that volume declines are bottoming out at around 50% to 60%. As you know, Quest Diagnostics has played a pivotal role in bringing COVID-19 testing capacity to the nation.Since we launched COVID-19 testing with a molecular laboratory developed tests, performed at our Advanced Diagnostic Laboratory at San Juan Capistrano, California. We have performed and reported results of nearly 1 million test to…

Thanks, Steve. In the first quarter, consolidated revenues were $1.82 billion, down 3.7% versus the prior year. Revenues for diagnostic information services declined 3.8% compared to the prior year. As Steve noted earlier, our business performance was strong in January and February, but we experienced a substantial decline in volumes in March. Volume measured by the number of requisitions decreased 2.4% versus the prior year. Excluding acquisitions, volumes declined 2.7%.Before describing some of the volume trends we saw in March and early April, I do want to spend a moment on the strong performance of our business prior to the COVID-19 pandemic. Through February, year-to-date total revenue growth was just over 4%, with organic revenue growth of just over 3.5%.Total volume growth was strong at 6.3%. Volume through February included a calendar benefit due in part to leap year, as well as mild winter weather. Adjusting for these benefits and the impact of acquisitions, organic volume growth in the first two months of 2020 was nearly 4.5%, indicating that the strong progress you made in 2019 continued into 2020.As we moved into March, we started to see single-digit volume declines through the first two weeks of the month. Stay-at-home measures were implemented in several states by the third week of March, volume declines accelerated to nearly 40%. And by the last week of the month, volume declines across the business started to approach 50%.So far in April, we have indications that volume declines have stabilized in the 50% to 60% range. These declines include the benefit of COVID-19 molecular testing, which has been running at approximately 30,000 tests per day on average or approximately 6% volume growth through April.Revenue per requisition declined 1.2% versus the prior year, primarily driven by higher reimbursement pressure. Unit price headwinds were slightly more than…

To summarize, we were very pleased with January and February performance, but saw a material decline in last two weeks of March. We are managing the company for the long-term and are taking a series of actions to protect our financial flexibility.Quest has been at the tip of the spear in responding to the crisis, and we will continue to play a critical role in the next phase of containing COVID-19. While there's uncertainty in the near-term, we look forward to the gradual improving conditions we see in front of us. Eventually, the healthcare system will start to return to normal and when that happens, Quest will emerge from the crisis stronger with significant opportunities in front of us.Now, we'd be happy to take any questions you have. Operator?

Thank you. [Operator Instructions] Our first question comes from Ann Hynes with Mizuho Securities. Your line is open.

Good morning, Ann.

Good morning. First, I want to commend you and all the Quest employees working through this crisis. It's been nice to see.

Appreciate that.

But my questions are focused on antibody testing.

Sure.

I know you said by mid-May your capacity will be about 200,000. What do you think your peak daily capacity could be over time? Because I'm assuming this is a serology test, it could be higher. And then secondly, what do you think the ultimate -- like how should we view this opportunity? Should we assume that everyone in the U.S. will at some point go a serology test, whether it's to get tested for the vaccine or go back-to-school or to go back to work? And maybe what is Quest doing to maybe grab some more of the market share? Are you working with governments, employees, school systems, things like that would be great. Thanks.

Yes. All right, Ann. All right. So all around antibody testing and serology testing. So as you read our press release yesterday, we launched our broad implementation of serology testing. We actually brought up a week or so ago, our first limited LDT laboratory developed tests on the EUROIMMUN platform. And we did that in two of our facilities and we did that for limited customers, hospitals and at risk individuals. So we had some experience with it.And then second, as we brought up our first platform, which is an app platform, and we announced last night, that will -- platform is in many of our sites and we will bring that up quickly. And then we will have a few other platforms we bring up in the course of April into May. And that will allow us to get to that 200,000 tests per day number by mid-May. We've run seven days a week, 24 hours a day. That's about 1.5 million per week. And so you can think about 6 million per month.Now, to answer your questions, we're not stopping there. We've got more capacity in front of us. We are always dependent though on the capacity coming out of the IVD manufacturers with the reagents that we need. So somewhat of the limiting factor has less to do with us where we have lab capacity, but more related to the reagents and the supply chain from our suppliers. So we're working with them as well. So that's what we're willing to say we'll have in the month of May.Now, how broad would this be? What we announced in a press release and you see the guidance from the FDA, while we do believe are several things, one is after a certain number of days and the best…

All right. Thanks.

Thank you, Ann.

Thank you. Our next question comes from Ralph Giacobbe with Citi. Your line is open.

Hey, Ralph.

Thanks. Hey, good morning. Thanks for all the detail. So you mentioned the minus 50% to minus 60% volume ex COVID, I guess first just want to clarify that the profit loss commentary is inclusive of COVID-19, so sort of it's an all-in number or is it enough to offset that profitability loss? And then how do you think about decremental margin with that type of revenue decline? If you can give us any sense there that would be helpful as well. Thanks.

Yes, Mark.

Sure, Steve. So, Ralph, the statement around net loss would be a volume inclusive of COVID testing continue to be down around 50% to 60%. Now, what that does not include is serology. So as I said in my prepared remarks, the -- well, we're encouraged by the potential demand and a lot of the things that Steve just explained are either in mid-term or a late stage conversations around stepping up some testing for government entities, for employers, etcetera. We haven't been performing that test. Obviously, we just launched serology, so we wanted to be cautious about forecasting in any way how meaningful serology would be.But based on all the things we've talked about, it could be significant. We also don't know the reimbursement rate yet, but hopefully fairly soon. And I think the trigger for commercial rates will largely be based on where CMS comes out. So we're all waiting on that. So that net loss comment and the 50% to 60% would include the current level of PCR where we said we're averaging about 30,000 tests a day. It's offsetting about 6% of our loss, but it does not contemplate significant upside if it happens from serology testing at some point in this quarter. And then on a margin perspective, obviously, if we losing money, the answer to that, but from a drop through perspective, because we are high fixed costs and we've already counted on as much adjustment to our cost structure as we can optimize through our furloughs, through reduced hours to some of those salary reductions for the next twelve weeks. We're largely fixed cost after that.So therefore any sort of volume changes would likely be at a very high ratio, if things were to get worse. As we said, we believe we've bottomed out because we've seen some stability over the last couple of weeks. There's some encouraging signs in some of the areas that were most impacted because not all geographies are created equal. So, some of those are bouncing back a little bit. But at this point, we wanted to be cautious, we wanted to be conservative, we wanted to tell you what we know today. And therefore the outlook for the quarter is not based on speculation. That is based on what we're seeing and what we know today.

Okay. Helpful. Thank you.

Thank you. Our next question comes from Kevin Caliendo with UBS. Your line is open.

Hi.

Hi. Thanks. Thanks for taking my call. Good morning. A lot to think about here. But one thing I guess we'd like to focus on a little bit is on the cost side, you Invigorate and the plans that you have had in place for a long, long time. How do we think about cost savings, net growth Invigorate, all of that kind of that we had originally built into the model. I'm guessing part of that …

Yes, yes.

… thrown out here.

Sure, sure. So let me start, then Mark will I’m sure, add to it. First of all, Invigorate continues. That's a regular cadence and one of our two strategies that we have is to drive operational excellence and a portion of that is our efficiency program and we continue to look for that 3% of our cost basis for years. So that hasn't changed. So we continue to work on those programs. And in that regard, one of our flagship programs that we talk about is the new Clifton Laboratory that will allow us to consolidate the footprint to allow us to put in some new platforms, the immunoassay platform we talked about in the past, that project continues. But what I'll say, we're in the process of refreshing our plans because some of those plans might change. So, for instance, construction in the state of New Jersey might slip some. So some of those might change.And then secondly, some of the expectations around costs within a given year in terms of magnitude might be lower because some of it is volume dependent. However, in terms of percentage, if we're at lower volume levels, they'll be even higher percentages given some of this is fixed. So we're refreshing our perspective, but the goal of getting at least 3% of our cost basis for a year still stands. But we haven't provided an absolute number beyond the 3% in the past. So, Mark, would you like to add to it?

Yes, I think Steve summarized it well. A lot of our Invigorate is around volume related activities, whether it's labor, whether it's our lab throughput, whether it's the draws we're doing in a patient service centers. So any sort of savings, certainly will continue as we implement some of the cost improvement efficiency opportunities, but they will be proportional. So obviously the dollars will be less. We always talked about 3% on a $6 billion plus cost base. Obviously if the cost base goes down, given lower volumes, you can expect lower dollar savings. The other thing I would add is that a lot of our efficiency programs are, design along the normal level of testing. So it is difficult to operate as efficiently when you lose half your volume on a given line, some places even more than that and given assays.So the efficiency around reagents and other things operational, things like labor flexibility and so on. So there is some offset to our Invigorate program and lost efficiencies, while we continue at this low level of volume because we're not going to rescale our business obviously to that extent. We're considering this to be temporary at some point, even though I caution we don't expect to be fully back to the level we were prior to COVID. We at some point we'll be back to much more significant testing. I mean, some of our cancer screening is down, very, very significantly. We all know at some point we have to come back and do that work because cancer doesn't go away. So, Invigorate will continue. It will be proportional. There will be some offsets because of the inherent lower efficiencies at these volume levels.

If I can ask a quick follow-up on the volumes. When you say things have stabilized, are you seeing now a baseline where these are the chronic tests that basically need to be done and or are you starting to see an increase in sort of other testing that might -- you might be considered incremental that you hadn't seen in March that maybe you're now seeing again in April?

Mark, you want to take that?

Yes. So volume has not turned around. We said it stabilize. So when you asked about whether things in March and now we're seeing them pick up, what I would say is that, we worked across what we call our clinical franchises, and there's absolutely differences depending on the acuteness of the condition and the necessity of the testing. But there's some very acute important areas of adjustments and like cancer screening led testing in children, etcetera, that are down significantly just because physician offices are closed and people are uncomfortable going out, or people being told not to go out except for extreme necessary situations. So while we absolutely see some levels of difference across the testing venue and how much it's down, some more than 50% to 60%, some less than that. I can't tell you that we've seen more discretionary type testing come back dramatically yet.

Guys, thanks so much for all your help on this.

Thank you. Our next question comes from Jack Meehan of Barclays. Your line is open.

Good morning, Jack.

Yes. Good morning. Hope you guys are doing well.

Yes, we're doing well.

If you don't mind, I have a three parter on COVID testing. They're all …

Let me write it down, Jack.

Okay. The first one is where do you think reimbursement is going to shake out? Do you think commercial payers will follow the higher Medicare price? Second, how much further do you plan to scale up the testing? The stimulus package last night seem to call for further expansion. And then finally, just as you fold this all together with the core volumes down, if you look to the second half of the year, do you think net, net, it could be a positive impact as this testing persists? Thanks.

Yes. So let me start. So on reimbursements, we were really encouraged by CMS upping the rate to $100. We're current -- currently working -- approaching all the commercial insurance companies on what their rate will be. And we don't have an answer on that, but we're encouraged that CMS went up and that's usually an indication that gives us leverage working with the commercial insurance companies. So more to come on that. Second, as Mark said, we still do not have the CMS rate for a serology testing. That's an important fact for us to establish reimbursement for serology, which would be, as we said, a significant opportunity. As far as scale, I mentioned in my comments, we are driving capacity gains going forward. We're bringing up some new platforms, trying to get some additional units. We're looking for different approaches of how we can get more productivity and more capacity from our existing platforms. And that is on the molecular side, will equally be on the serology side. And we have actually been asked by the White House task force to think creatively of what we can do to expand our capacity beyond what we have done so far. So we're thinking our way through that.As I said, we're right now at 50,000 tests per day, and that's for molecular. We're trying to get plans in place to bring us north of that number. But nothing that we can say at this point, but we're aggressively pursuing it. We are encouraged by what we saw last night come out of the Senate and hopefully the House will deliberate and we'll get the next round of funding. And some portion of that will come to us, because we do need to continue to do the testing in this country.…

Yes. Let me add a couple of things. So, Jack, almost without exception and certainly all of the national payers and large regional payers, the commercial reimbursement for the PCR test was based on the rate for Medicare and was not a subset or proportion, which obviously it's in the industry practice, but was with at or above the CMS rate. So therefore, I'm confident that we're going to do well. As you know, CMS has updated this price. We are in advanced discussions and I think it's very probable that most, if not all the company, the commercial payers will recognize the higher rate from CMS and our commercial rates will change. So I'm optimistic there.In terms of the second half of the year, as we said, we're very careful. We -- none of us know how this is going to play out, but you can do the math. So if you know, the capacity for serology is in any way meet the demand and Steve talked about 200,000 a day, you have the PCR currently today at 50,000 tests a day combined, those represent almost half of our normal daily testing volume. And given that we don't know serology yet, but we're hopeful the price will be fairly close to an average requisition price for us.And we know that the PCR testing is above that with the CMS rate revision. One would assume that the value of a requisition will be somewhat similar to what our average is today. So, again, I don't know how much the core volume will recover, how quickly it will happen, etcetera. But if there is some recovery and if there is some high level of demand for the COVID-19 testing, as we're all hearing publicly, then you can do the numbers and you can see that the back half of the year could be very different than the second quarter.

And just to remind everyone there is a difference. And hopefully it's clear between the molecular testing, which requires a health care professional in most cases to do the specimen collection. And in many cases, they're protected with full garb of personal protection equipment. So that created a bottleneck of people getting tested. And we've worked on some different approaches to that. As a matter of fact, in the Walmart, the Walmart sites, we have observed self collection where actually we have an approved kit from the FDA where it is a nasal swab, but the person can use that swab themselves, but it has to be observed by health care professional.But in the case of Walmart, what actually happens is the person drives up, they provide the order to a health care worker in those parking lots that aren't nearly as protective as what we need to do before, they confirm all the information. The health care worker provides information that close up their window and they do the self collection themselves and it's observed through the window. So that's proven to be highly efficient. And we're looking at other ways of collecting that trend on the molecular side. So that has been a little bit of a bottleneck too on that and we're improving how we get the specimens.Remember, serology is blood based. And so it leverages all our infrastructure. And so as you know we have 12,000 phlebotomists, we have 2,200 patient service centers, we have 4,000 phlebotomists and physicians' offices. And so when this starts to light up, that provides us a nice opportunity to collect those specimens quickly and potentially tag those orders onto other orders that might be coming in from the health care delivery system as health care starts to turn on. So when you think about serology and you think about the front end being much simpler and much more pervasive and leveraging everything already have, not exceptional like the molecular test has been so far.

Thank you. Our next question comes from Ricky Goldwasser from Morgan Stanley. Your line is open.

Good morning, Ricky.

Yes. Good morning. And thank you very much for the update that you've been providing over the last four weeks. Very, very helpful and all the transparency. My question is focused on unemployment. Obviously, it's another variable to think about as we think about this year and next. So first, how are you incorporating into your assumptions that Mark talked about. And then if we think historically you have relatively more exposure to Medicaid. Just wanted to better understand, is there something that's structural or will you -- do you expect that we are going to see higher -- as we're seeing higher unemployment to see a move from commercial to Medicaid? And then maybe if you can give us some sense of what's the relative pricing or relative margin so we can we can start framing what that mix shift could mean for second half of the year in 2021? Thank you.

Mark, you want to start with that?

Yes. So, Ricky, our Medicaid revenues, as you know, are low single digits. Currently Medicaid is typically lower priced than Medicare, typically priced lower than commercial rates. Now when you talk about unemployment, absolutely, we've thought about that. And one of the reasons amongst many that we're cautious about whether volumes bounce back to where they were earlier in the year was the potential for continued unemployment higher than obviously we've had in the number of years. And so, therefore we are recognizing that potential as we think about the balance of the year. And quite frankly, going forward, the other dynamic is if you look historically and obviously we try to do that, I'm sure others have to try to predict what might happen this time, there are some notable differences. One of them is the Affordable Care Act does provide more of a safety net for those who lose their jobs. So that's a positive.But the other thing is, given the magnitude and the speed at which people have become unemployed, it's really difficult to model and predict what that might do to utilization. We are being very cognizant of collectability, not just from patients, but from hospital systems, from physicians. So we're monitoring very, very closely our receivables and collection rates. And we are anticipating likely headwinds on collectability of our revenue going forward, given everything that's going on. So that's certainly on our radar. But the other dynamic is, given that utilization has -- in the last couple of months dropped significantly, one might assume that a greater portion of our revenues would be coming from patients because people will be more slowly or not getting through their deductible and calendar basis relative to where they may have in the past.So we've looked at all of these things and that obviously it will be a headwind. But there's no model we can point to historically to say this is exactly what it means. I mean, in the last significant recession, our collectability rate actually did not materially decline. Utilization was impacted, but we did not have a higher rate of what used to be bad debt. Now it's mostly patient concessions. But given all the dynamics this time, we think that that's a likely possibility. However, you do have the safety net through the Affordable Care Act of expansion of Medicaid in many states. So how all those pieces put together? I can't fully predict, but trust me we're thinking about all that. And as we see trends and as we understand those impacts, as always, we'll be extremely transparent around what we're seeing.

Understood. Thank you. And just one follow-up question on the volume side. Whether you -- do you see any differences in geographies? Obviously, you have the national footprint and when we think about different states we're trying to kind of look at the volume declines to try to start to think about how recovery might look like. So are you seeing any differences between volumes in the northeast versus the south versus the west?

Yes. So we've built up a model looking at our business from multiple perspectives. One, Mark, said earlier we have variation by types of clinical franchise business we have, some have declined greater, some have declined less. And we're thinking about why that has happened and when there is turning back on to health care delivery system, how quickly they will come back up. So that's one. Second is we do have differences between what's happened in the hospital environment and also physician environment. And so as hospitals start to change what they are going to allow back in their doors, that will change. That is well. And then third, we do see a difference in what's happening by state and by cities. And so we've tracked all of that. And what we have found, as we said in my introductory comments, all metropolitan areas have dropped. Obviously, some of those areas like New York, New Jersey, and now Lawson is starting to light up, parts of Florida have come in later than the West Coast. So we're tracking all of that and we're doing that because we're also trying to see when things might start to turn back on.So you start to see some of the individual states starting to loosen up their shelter-in-place and started to loosen up employers coming back to work. And so we're watching that carefully, so we can kind of indicate where we need to bring back our capacity. We talked about our costs programs. We've talked about furloughs. I want to make sure it's clear. Our furlough program was a program where we offered it to employees, but they had requested from us and we had to grant it. And so we grant out furlough. It allows them to continue to benefits request, but also allows them to collect unemployment and apply to the CARES Act for a weekly stipend. But it also allows us to bring them back. And so they have an obligation to come back when we need them. So as these states start to turn back on, we will bring back the capacity we need to turn it back on. But we're watching that Ricky carefully to understand what's gone down and when did we start to see some recovery by state and by clinical franchise going forward.

Yes, the one other thing I'd add is that while shelter-in-place certainly has a significant impact on utilization and some of the greatest volume decreases were in those geographies, as we mentioned, every major metropolitan area in the country was seeing significant declines. Maybe not to the same extent in late March and then into early April, regardless of whether we had shelter-in-place. We are not as true outside the urban areas, but in the metropolitan areas people were being cautious, including physician offices, etcetera in -- how they were accepting patients and whether they were staying open or not and patients were being cautious about whether going out or not, given all the media attention and so on and so forth. So while there is absolutely a correlation with shelter-in-place rules, it's more than that, that has been depressing utilization.

Thank you.

Folks, there's a number of people still in the queue. And we're getting towards the bottom of the hour and we'd like to get to most of you, so please limit to one question.

Thank you. Our next question comes from Steve Baxter with Wolfe Research. Your line is open.

Hi, Steve.

Hey, guys. Thanks. Hey, thanks for all the information and thanks for everything you guys are doing a standup testing capacity.

Appreciate it.

I appreciate all the color on the antibody testing so far. So I'm just wondering, I guess, how you guys are thinking about sizing the demand when you scale up capacity to those levels? Because if you could run 6 million tests a month, you could test more than 20% of the country yourself over the next year. And obviously others will be ramping up their antibody testing capacity as well. So it sounds like you think this is going to go well above the sort of like sampling types of analysis that we've seen in places like Germany and New York City starting to pursue. I was hoping you could help us see the bigger picture here, from where you think this might be going over time. Thanks.

Yes, well, to start with, if you look at the numbers that come out of the White House in their press briefings, we said that we've done over a million tests. We're close to 25% of the total country's testing. Obviously, we have better percentages, a higher percentage in certain states grew up broader presence. And some states are really just ramping up their testing in a bigger way. If they look at Florida, where we have a big presence that's just really started to light up in a big way. As far as the opportunity in front of us, we are encouraged by the opportunity we see. We're waiting to see how quickly it does ramp up and just what kind of pickup there will be from physicians on serological testing and how fast that ramp will be. But we're building enough capacity to respond to it. And again, a lot of our capacity will be highly depended upon the equipment we have and the reagents we get. So if there's more, we're hopeful we can build on what we have, but we are very limited by that. So we're going to keep our eye on it, push it as one of the two testing categories that should be done to respond to the virus and see how quickly it ran. So we will keep you updated as we learn more.

Is there something that's going to be an add on to your typical kind of routine panels, or do you anticipate people coming in sort of exclusively for these types of test? That’s it for me. Thank you.

I would say both. And I think there's as I mentioned earlier, we're working with employers because many employers are trying to understand how they bring back to employees. And there's wide variation in employers, but these employee programs will both test your employees for the virus with the molecular tests, and they'll also test them for the antibody tests. And we might do those, particularly the antibody test in different types of venues like corporate sponsored events where we can -- now where we can draw the specimen quickly as we do, corporate events they were for flu shots or Blueprint for Wellness program. So we already have that capability of ramping up these corporate programs. And those will be quite different than the traditional way of doing testing that we have with physicians or hospitals today.

All right. Thank you.

Thank you. Our next question comes from Derik de Bruin of Bank of America. Your line is open.

Hi, Derik.

Hi. This is Ivy for Derik today. Thank you for taking the question and thank you for comments so far and all the COVID updates in the past few weeks. It's very helpful. So I wanted to talk about longer term here and looking across COVID. So the two parter. One, does COVID change your thought on future wellness and routing testing demand? And two, does COVID and the PAMA delays change your view on lab consolidation. So with this change there could be more difficult to have those conversations with hospital C levels? Just wanted to get your thought on that here?

Mark, you start the first one, I had a hard time hearing the first question. Mark, did you pick it up?

Go ahead. If you wouldn’t mind repeating, you talked about future wellness.

Right. So that's the COVID-19 changed your thought on future wellness and routine testing demand. So in other words, does the crisis drive more routine and one is testing, given that people with preexisting conditions are at higher risk from that virus or there may be more of a downside from the post COVID disruptions.

Yes. So on that one, it's very hard to predict. And just like you're asking, it could go either direction. We don't have any sort of crystal ball better than anybody else. Obviously, in my prepared remarks and then one of my answers, I expressed a concern that we're deferring critical diagnostic testing that's important for our health and well-being. And one would hope that at some point we say, that's really important, we've got to find a way to get it done regardless of what risks might be around COVID and whether that bounces back to where it was before or whether to your point could it potentially be more because COVID is obviously much riskier for those with pre-existing conditions that we're all familiar with and that means we want even more tightly manage that. I certainly can't predict it. I’m not sure, if Steve wants to comment anything differently. So that's unclear. But as we said, as we progressed through this and we all learned together, we will be highly transparent around what we're seeing so that you all can understand as much as possible how that is playing out. Then, Steve, the other one was on PAMA lab consolidation.

Yes. We see an opportunity. So if you think about what's happening within the healthcare provider market, we're an indication that volumes are down. You have all the data on possible missions. You have data on physician visits. You see it reflected in our volumes being down. And so hospitals and as we all know, 50% of physicians now are employed by hospital systems are going to be struggling as they enter this quarter. And we'll be looking at opportunities to become more efficient, reduce their cost, generate some cash. And so we believe there could be an opportunity for us to continue our consolidation strategy in the back half the year, it is more of these systems and some of those dialogues we've had for years maybe become more active now because there's now more likely to think about creative ways that they can work with a company like Quest on their lab strategy.So we think that could be another catalysts for consolidation. And as you know, this is also a fragmented industry. There's other regional, especially laboratories. And it also might have worsened other opportunities for us to consolidate. So we believe this is a good opportunity in the long-term for us to continue our strategy of accelerating our growth and consolidating the marketplace. And in the short-term, it's difficult, but in the mid to long-term, we think it could be yet another opportunity to do what we’ve said we wanted to do.

Operator, next question.

Thank you. Our next question comes from Matt Larew with William Blair. Your line is open.

Hey, Matt.

Thanks. Hey, how are we doing? Thanks for fitting me and I wanted to ask about this sort of pacing through the recovery second quarter and third quarters here. A number of states have targeted opening up at the beginning of May and then some in the second week of May. A component of that and the administrations kind of guidelines are focused on getting some of the non-emergent care back opened up and physician offices opened up. But Mark, I think you mentioned that you anticipate non-COVID testing down 50% to 60% for the quarter. Could you maybe just give a sense for how in terms you're thinking about what those months might look like as states start to open up in some of that care, which as you’ve alluded to, isn't necessarily entirely not elective starts to return.

Yes. So as I said, we are not going to speculate, because it shows too hard to predict. So, yes, there's absolutely some potential for volume bouncing back from where it is now. We're not assuming any material improvement for the quarter, not because we know that won't happen, but because we think that's the appropriate point of view to take in order to make sure people are aware of some of the potential downside. We also haven't built in any significant serology volumes into those assumptions. And we've heard a lot of discussion today around that potential demand and ramping up fairly quickly. We don't know to what extent. So I don't want anyone to assume we have too much precision around this 50% to 60% down for the quarter and a, net operating loss. But that's potential if it does stay where it is and we don't get significant serology testing or significant upwards in our PCR testing. I don't know if you want to add anything, Steve, to that.

I think I'll add is what I just said earlier. There is going to be a lot of pent up demand from patients. And Mark said there's been a lot of physician offices that have been canceled, postponed and delayed. And so they will start to come back to the system. When that will be, we will vary by city and by state. And so that's what I said earlier in the comments we're tracking all that. So one could think later in the quarter you start to see some recovery. There'll also be those physicians' offices in those hospital systems want to bring back in those patients as well. So we're actually going to do a survey of our customers to get a perspective of what they're thinking about when they turn back on their offices or open up their offices with extended hours, extended workdays. I think people are now thinking that the summer won't be the same summer. July and August won't be the heavy vacation period. So we're watching all that. But as Mark said, too early and too much too much uncertainty around it for us to give you anything more than we provided. But we're keeping an eye, our eyes on it closely.

Operator, next question.

Thank you. Our next question comes from Donald Hooker with KeyBanc. Your line is open.

Hi, Don.

Great. Great. Good morning. So in last quarter, you called out some significant expenses around your advanced diagnostics. And I think a part of that was associated with the very interesting acquisition. I think a Blueprint that was kind of thinking about that being a nice tailwind for 2021. It sounds a little discretionary to me. Is that's something you're going to continue to pursue and as we think going forward.

Yes, absolutely. Our strategy to accelerate growth continues. One of those strategies is to continue to build our advanced diagnostics platform. Again, that's all genetics and molecular. The acquisition that we did complete early this year was a nice platform capability acquisition. We feel good about that company coming into Quest Diagnostics. The integration is going well. There's a lot of opportunities in front of us with a genetic base testing. And our plans for that do not change given the crisis step that we have.

Operator, next question.

Our next question comes from Lisa Gill with JPMorgan. Your line is open.

Hi. Thanks very much. Good morning.

Hey, good morning, Lisa.

Good morning.

Good morning, everyone. Steve, in your prepared comments you talked about changes to the lab industry. And I'm just curious around your thoughts on telemedicine and the impact going forward. So clearly, at some point we're going to start to see physician offices open again, etcetera. But I think every large hospital system, to your point that own physicians has talked about the fact that we'll see more telemedicine going forward. How do you think about your relationship? Do you have any preferred relationships today with Telehealth providers that you anticipate that you'll see more Telehealth services in the home and then they'll be coming to your patient services center? I'm just curious, as to how you think that trend plays into Quest going forward?

Yes. So, we’ve been working with all the Telehealth providers and platforms in this many different models as we know. So we do see that as another channel, if you will, or another type of capability as health care provision. And this crisis has burned some of those models there and established some credibility and some comfort with patients. And so we do believe that will become a larger percentage of our volume. And when you have those engagements, many of you on the call probably have had those engagements, they do order testing. And then it follows the workflow that we have for testing within Quest Diagnostics. And then depending upon the model we’ve used in the platforms, the use is telemedicine going to be your primary care physician or would they be an adjunct to it and therefore, we have the connectivity to connect back to the EMR in the primary care physician. So good opportunity. We have strong relationships with many of the Telehealth platforms, big and small. We actually are always prospecting what new startups and ventures are coming up with new capabilities. There's been a lot of new front end capabilities, triage capabilities that you see to run COVID-19, which has been interesting, some of which we're very well of -- we're aware of and have good relations with. So it is changing and this crisis has brought more visibility to it. So we believe that's a good opportunity for us and we're very well positioned with those companies going forward.

Operator, next question.

Our next question comes from Erin Wright of Credit Suisse. Your line is open.

Great.

Hey, Erin.

Hi. Good morning. Hope everyone is well. In terms of PAMA, do you think that you've also earned some goodwill in light of the COVID response that can help with the lobbying efforts overall and for the recalculation of rates there? Thanks.

Yes. What I'll say, Erin, is it can't hurt. This crisis has brought to the forefront the importance of testing. And I never believed when I joined this company over eight years ago, that would be on the front page of every news story in America and all over the media, but we are. So it's much easier now for us to make our case with members of Congress, to the administration in HSS with the value of testing and the need for us to get fairly reimbursed. And also to reinforce the intent of Congress in making sure we get a new process put in place that properly reflects the market rates. So it is actually a very good fact for us. We're going to leverage that. Just to remind everyone the CARES Act did change the timing. I had those in my prepared remarks. And then second is we still have the lawsuit going on, which is still happening. And we're hopeful we'll get a decision sometime this year on that.

Thank you. Our next question comes from Eric Coldwell of Baird. Your line is open.

Hey, Eric.

Thanks -- hey, thank you very much. You mentioned in prepared remarks the $65 million distribution from the first $30 billion out of the CARES Act. Just a couple of questions on that. Does that mean you're anticipating getting another $150 million plus here in the short-term? $65 million at 30%, so assume it's $150 million less. And secondarily, with the 25 billion of testing stimulus that just came out, are there any impacts to Quest other than just the support of more volume and more activity in the market? Are there any direct impacts from that new 25 billion for testing that just came through in stimulus?

Yes. Mark, do you want to start on the $65 million?

Yes. So that was a unique situation. They created a pot of money of $30 billion emergency relief. There were no stipulations for how you would get that money. In fact, we are surprised, it showed up in our bank account. It was based on proportional billings to Medicare and that probably divided up at $30 billion. So anyone who had billed Medicare in the prior year got a portion of that. The other parts of this bill are, for various aspects of getting testing up and running. I will turn to Steve to cover some of that, but there's nothing else that quite mirrors that emergency relief fund where we got the $65 billion. So while there's opportunities for us to utilize some of the other funds, it's not as straightforward and it's not as simple as what happened with that emergency relief fund. So, Steve.

Yes. And I'll just say the package that was just approved by the Senate last night, we don't have a lot of clarity of any specificity underneath the hood, if you will. And then also, as you know, it's going to be debated in the House. So we'll be watching and giving them input as they refine it. But it is critical to get America turn back on, that we have the resources and we're properly reimbursed and paid for the work we do. And as I said, we are the leader for a portion -- a large portion of the country is testing. And therefore, I would expect that some portion of that money we could tap into as a resource for us, but it's uncertain at this time what it will be and if any.

Operator, last question.

Our last question comes from Brian Tanquilut of Jefferies. Your line is open.

Hi, Brian.

Good morning, Brian.

Good morning, guys, and thanks again for everything. So just for the last question, just really quickly. So, Steve, thanks for all the updates or comments on your -- the hospitals and physicians. But as we think about your referral sources and try to pinpoint the recovery, if you don't mind could you give me some more granularity on where the bulk of your referrals are coming from? Is it primary care specialist and then hospitals? And then I guess my follow-up is just what your average serology test reimbursement is across the platform? Thank you.

Yes. So just to give you a scale again of what our different businesses. Of our business, roughly a billion of it before crisis was coming from hospitals. To give you an idea of the scale and -- and then a billion of our business is -- are related services like our population health business with employers, our employer drug testing business, our insurance business. And so the remainder is really physician driven, okay? So, roughly $6 billion of our $8 billion before crisis was -- is physician driven. So those referrals are obviously very important because that's where we get the vast majority of our volume.

And then on serology testing, Brian, well, we've never shared a dollar amount. You can look at some of the CMS rates. We've made it clear through our trade association that we don't think the crosswalk that they probably would default to is sufficient. Obviously you saw -- in the first case for the PCR, we weren't successful initially. They established a rate and then they reconsidered, looked at it and almost doubled it. So we're hopeful that in the case of serology, there's some pretty compelling evidence and detail that we're going to get a serology rate for the COVID testing that's more commensurate with the cost that its -- we're going to incur in order to perform it.

Steve, closing remarks.

Sure. Well, thanks everyone, for joining us today. Glad we got everyone's questions and we appreciate your continued support and you have a great day.

Thank you for participating in the Quest Diagnostics first quarter 2020 conference call. A transcript of the prepared remarks on this call will be posted later today on Quest Diagnostics website at www.questdiagnostics.com. A replay of the call will be assessed online at www.questdiagnostics.com/ investor or by phone at 1800-839-1170 for domestic callers or 402-998-0559 for international callers. Telephone replays will be available for approximately 10:30 A.M. Eastern Time on April 22 until midnight Eastern Time on May 6, 2020. Goodbye.