Welcome to the Quest Diagnostics Fourth Quarter and Full-year 2018 Conference Call. At the request of the company, the call is being recorded. The entire contents of the call, including the presentation, and question-and-answer session that will follow, are the 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. Go ahead please.

Thank you, and good morning. I am here with Steve Rusckowski, our Chairman, President and Chief Executive Officer; and Mark Guinan, 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 through 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 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. Also, growth rate 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. As a reminder, the company now reports uncollectable balances associated with patient responsibility, which we will refer to as patient concession as a reduction in net revenues when historically these amounts were classified as bad debt expense within SG&A expenses. Now, here is Steve Rusckowski.

Thanks, Shawn, and thanks everyone for joining us today. This morning, we'll discuss the fourth quarter and full-year 2018, and review progress on our two-point strategy. Then Mark will provide more detail on the results and take you through our 2019 guidance. For the fourth quarter, revenues decreased 1.4%, reported EPS was $0.92, down about 50% from the same period of 2017, and adjusted EPS was $1.36, down 2.9%. Performance in the quarter reflects increased reimbursement headwinds as well as softer organic volume than we expected at investor day, and the change in estimate of reserves for revenue and accounts receivable, which Mark will cover later in the call. For the full-year 2018, revenues grew 1.7%, reported EPS declined roughly 4% to $5.29. Adjusted EPS grew approximately 17%, to $6.31. In 2018, we grew revenues, adjusted earnings attached from operations despite some challenges in the marketplace. Mark will update you on the quarter, and share our perspective on 2019. Quest is well positioned in 2019 to grow share, and deliver revenue growth as our in-network status now extends to approximately 90% of commercially insured lives in the United States. Volumes are off to a good start this year. Our guidance for 2019 reflects our expectation that strong volume growth will continue throughout the year. It also reflects significant reimbursement pressure partially offset by our continued execution of our Invigorate program. As we discussed at our investor day, in November, we are poised for growth based on three fundamental changes in the marketplace. First, panel-driven reimbursement pressure is a catalyst for structural change. In 2019, we expect about a 10% reduction in Medicare reimbursement rates, and a similar reduction in 2020. The impact of these cuts will be more significant on smaller independent hospital outreach laboratories which we believe could eliminate…

Thanks, Steve. In the fourth quarter consolidated revenues were $1.84 billion, down 1.4% versus the prior year. Revenues for diagnostic information services declined 1.5% compared to the prior year, primarily due to a change in estimated adjustment to increase reserves for net revenue on accounts receivable that we previously highlighted in November. I will share more on this in a moment. Volume measured by the number of our acquisitions increased 3.4% versus the prior year. Excluding acquisitions, volumes grew 1.1%. Revenue per acquisition in the fourth quarter declined by 5.5%, versus the prior year, driven primarily by the reserve adjustments and increased denials in patient concessions. For the full-year, price headwinds were consistent with our expectations of slightly less than 1.5%. Now, I'd like to provide color on the reserve adjustment we made in the fourth quarter. You'll recall we discussed this at Investor Day. We recorded a change in estimate to increase our accounts receivable reserves by approximately $35 million. We did this based on the following: Unexpected increases in coverage denials and patient responsibility and a billing system conversion in one of our regional labs that resulted in timely filing denials and impacted our ability to precisely estimate reimbursement rates. Because these items were not typical with our historical experience we monitored them in accordance with our process increased our reserve levels. I am confident in our process and we have timed the level of precision around this complex estimation going forward. Before moving on, I'd also like to provide an update on the headwinds to our prescription drug monitoring hep C and vitamin D test categories that we've been testing over the prior couple of quarters. In prescription drug monitoring, we saw an increase in restricted payer policies that impacted both volume and reimbursement, but we lapsed…

Thanks, Mark. Well, to summarize, Quest is well positioned in 2019 to grow revenue and earnings. Our in-network status now extends to approximately 90% of the commercially insured lives in the United States, and volumes are off to a good start. Our guidance for 2019 reflects reimbursement pressures offset by strong volume increases, and continued execution of our Invigorate program. Now, we'd be happy to take any of your questions. Operator?

Thank you. We will now open it up for questions. [Operator Instructions] Our first question today comes from Ross Muken with Evercore. Your line is open.

Good morning, guys.

Good morning, Ross.

So, as we look at sort of the fourth quarter and kind of what's implied in the first part of '19 and then over the balance of the year, I guess as you think about sort of the state of the lab market in general and some of the reimbursement headwinds you're dealing with, and then the flexibility of your cost structure, I guess in terms of your thesis for the business, obviously there's a lot of things that occurred toward the end of the year that were challenging for you guys, but yet there's a lot positive happening on the volume side. I guess how do you sort of put it all together for us so we can be confident that clearly the challenges we saw in the back part of this year you've sort of dealt with and now are reflected accurately so that we sort of found a rebasing side? And then what could you point us to kind of over the balance of this year that we should be looking for to kind of judge that the jump off into, hopefully, '20 and beyond, I guess, is going to be better? Because obviously you had a tough fourth quarter, the Q1 is supposed to be a bit weaker, and Mark you walked through that. And then we're sort of recovering. So I'm just trying to get a sense for confidence in some of the moving parts and your sort of evolved thesis here.

Yes, let me start, and then I'll turn it to Mark. And thanks for asking the question. So start, we'd go back to what we shared with you in investor day. We still believe as the market leader we have a tremendous opportunity to gain share. And I think we just announced the kickoff of our journey to pick up share, and it starts in 2019. We also couple 2019 with the most significant reimbursement that this industry has ever seen, so in reimbursement costs, and so it's muting some of the share gains that we're going to pick up this year. But what we told you at investor day, there's two parts of our market share gains, is one is we do believe we can accelerate M&A, and we're actually targeting for 2% growth through M&A. What we said in our guidance, we only will put in our guidance what we have seen so far closed, so it's roughly 1% in the guidance for 2019. Second is, we will see organic growth, and we have to pick up the volumes to be able to offset that reimbursement pressure. But when you go through the math, we believe there's an opportunity for us to pick up share in '19, and that will continue in 2020. The second part of this is what's going on in the industry, and I'll come back to those three points again. One is, PAMA is hurting all of us, but it's going to hurt the non market leading laboratories much more significantly. We believe this will be a catalyst for further consolidation. Second is, with our better than ever access changes payers are working proactively with us in how they do a better job of managing our category of spend. And then finally, as consumers are pushing back on their physicians, pushing back on their employers and asking questions about the best value in the marketplace, and we are the best value in the marketplace; the best quality, the best service at the lowest price. So, Ross, we have really kicked off '19 with the beginning of a journey here to pick up share. And we believe with confidence that we can deliver that outlook that we outlined at investor day. Mark, would you like to add to that?

Yes, sure, Steve. Ross, as I mentioned, and we've talked about several times, including the investor day, this year saw more dramatic changes throughout the year than certainly any one I've experienced since I've been at Quest. Denials were a big part of that. I'll start with the vitamin D change back in the second quarter, we saw more and more state Medicaid programs making decisions on cystic fibrosis, we've talked about prescription for monitoring and payers both tightening policies around same day of service for presumptive and definitive testing, which we think is clinically appropriate but they've put in policies to deny payment for one of those tests. We've seen them squeezing panels saying that they're going to pay for fewer and fewer analytes [ph], and again we don't think that's necessarily clinically appropriate but that is the way many of them are paying now. And even in the area allergy, there was an NCCI edit that was put in last year that resulted in significant denials in our allergy space. So, it was a tough year from a denials perspective. We have built all that into our 2019 guidance. And so when I talked about carrying the fourth quarter business into Q1, we fully accounted for all that in our thinking in the guidance we're providing. The other area of surprise was patient concessions. And we, based on what we knew going into the year, we're expecting a similar level of patient concessions. I'm sure you've seen and we referenced the Keiser Report that came out about the middle of the year that informed us and others that actually the average deductable went up significantly, so there was more being borne by patients. Obviously that meant more of our revenue was coming from patients, and we were just…

Our next question comes from Patrick Donnelly with Goldman Sachs. You may ask your question.

Great. Thanks, guys.

Good morning, Patrick.

Good morning. Steve, maybe just on the United trends, I know you gave some color. You guys are expecting a first tranche to move pretty quickly. Can you just talk through how it's come in relative to expectations? And then any way you can frame the expectations for the year would certainly be appreciated in terms of what's…

Yes, sure. So, what I said in my prepared remarks, it's off to a good start. And we expected that it would be off to a good start, so it's on our expectation that we expected to be able to pick up some of the volume early in the year. But what we also said is that it will continue to build throughout '19, and also this provides us a growth opportunity beyond '19, into '20, into '21, okay. So, when I talk about a billion dollars worth of opportunity, we'll see a portion of that in '19, and that's contemplated in our guidance. But there is a large portion of that billion dollars beyond '19. So it's tracking well. We're happy with the early volumes we see. And it will continue to build throughout the year.

Our next question comes from Ralph Giacobbe with Citi. You may ask your question.

Thanks, good morning.

Good morning.

Just lab equipment size, an incremental $30 million headwind from Medicaid related to PAMA. Are you seeing similar -- I think you said over $200 million of reimbursement headwind, seemed a little bit worse than what you previously estimated, so wanted to understand that. And then if you could, real quick, you talked about incremental cost in the -- I think you said in the first quarter, hoping you can just size that, and whether that does go away for the rest of the year.

Yes, Mark?

Sure. Ralph, the $200 million is actually consistent with what I shared at investor day. The amount of PAMA headwinds outside the clinical lab fee schedule, where we're directly reimbursed from Medicare on fee for service, is not large. There's some Medicaid programs that have reduced their rates, they may have justified it or cited PAMA changes. It's hard to know whether these Medicaid rates are directly tied to PAMA. You can look across all the states, there seems to be potentially some direct relationship. Not all of them have changed the rates. So yes, there's a little bit of headwind in Medicaid as there typically is, that's not unusual, certainly not to the magnitude of the amount that you asked us about. And then, we're not going to size the investment specifically, but what we wanted people to understand is when you look at the rhythm of the quarters coming to the year, on the cost side, not only do we not benefit from the restructuring of our cost base that we announced at the end of this quarter until Q2, but we also are actually spending more in Q1 as we're making people aware of our new access in all of the geographies where we need to inform patients and providers. We're adding [indiscernible] by adding patient service centers, extra couriers, doing all the things to ensure that as this volume comes the customer and stakeholder experience is outstanding. And obviously, we'll continue to monitor that as we see the volume, and either add more or less, but initially when you add that a little bit ahead of the volume it's cost versus cost of sales. So, that's really what we wanted to make sure people understood. And then the other significant item in terms of the quarterly cycling, as I mentioned, is one fewer revenue day that it is significant. We pick it up in Q3, but losing a day billing Q1 versus last year is going to be a significant impact in the year-over-year comparison.

Thank you. Our next question comes from Bill Quirk with Piper Jaffray. Your line is open.

Morning, Bill.

Thank you. Good morning, everyone. So, a couple of questions here, so first off, on vitamin D, real quick, just want to confirm that this is lower volumes versus, say, pressure on reimbursement levels. Also on the Medicaid denials, was hoping you could expand on that a little bit because it's pretty much universally covered, at least based on our due diligence. And then lastly, just big picture question for Steve, based on your conversations, how much volumes from the hospitals do you think could be play for M&A over the three-year PAMA period -- initial PAMA period? Thank you.

Got you. Mark, why don't you take the first two?

Yes, so the Medicaid denials, and I'm not sure what you're referencing, Bill, but a combination of managed Medicaid where they put in more restrictive requirements, including preauthorization that often can result in denials. Also, some of it arguably clinically appropriate where they put in new intelligence to ensure that we only have this once in a lifetime. They may have had this done by a different lab. Historically we obviously weren't aware of it. We get an order, we think it's legitimate, we do the work, we provide it to the payer and they deny it based on it -- once in a lifetime policy. So those things are absolutely tightening in the cystic fibrosis. And we have had a couple of states, I don't have it at my fingertips, we'll circle back and do that actually, the state programs with traditional Medicaid that have stopped reimbursing cystic fibrosis as well. And vitamin D, as I mentioned, it was a combination. So certainly, we still continue to get and got orders with screening codes. Quite often vitamin D is ordered as a part of a bunch of other common laboratory testing. So we don't choose to not perform that test. Even if a diagnostic code initially is not one that suggest to get reimburse, so and absolutely the headwind to our revenue, revenue for rack. And has resulted in significant denials with the change in this national payer, but also as physicians have gotten educate them with the appropriate use and certainly, we're driving that. The industry is driving that, you have seen a fall-off because some of the vitamin D that was being ordered was prescreening and clinically that has been determined not to be appropriate. But there still is a number of vitamin D tests are coming to in the screen codes that really are not screening. The doctors just are not coding them appropriately, and unfortunately, those are resulting in denials and headwinds for us.

Yes. So Bill, on your question about the opportunities around hospitals, let me start by reminding you and everyone that, what we said in the Investor Day is in 2018, we have a strong year for M&A. It's about 300 basis points roughly. And if you recall, you go back to one of those Investor Day slides up for use and charts we use, if you look at the distribution of the M&A, we've done past few years, it's really been a balance of acquiring hospital outreach, acquiring some outreach deals. Excuse me, some laboratory regional deals and they are finally buying some capabilities and services and advanced diagnostics. And if you look at the hospital deals, it's been, a good part, but not a majority of what we have acquired. And then, second is we still pick up let's say one regional app for year. And that, in fact, we just said in our prepared remarks that we closed on voice and vitamin Missouri. So it's a good example of doing that once again. And what we also indicated is prospectively, we do believe it's obviously for all three categories, is that M&A should be north of 2% going forward. And we also said we've only contemplated in our guidance, something around 1%, which are those deals for 2019. So some portion of that is the acceleration in the discussions we're having with hospitals around their lab strategy. And we have those discussions Bill, we also have discussions around professional laboratory services and that's an organic growth opportunity. And we announced again in our prepared remarks that we picked up two engagements in the back half '18 that we feel good about and we have more engagements in the pipeline as well. So you need to think about our hospital strategy really from a contributor to M&A because of that 2% but also equally the opportunity organically to pick up organic revenue growth through these professional laboratory services engagements that we continue to announce.

Thank you. The next question comes from Lisa Gill with JPMorgan. You may ask your question.

Good Morning, Lisa.

Good morning, Steve. Good morning, Mark. I just really wanted to just make sure that I understand how we're thinking about the cadence of earnings this year. If I look at 2018, it looks like roughly 52% of earnings came in the front half, 48% in the second half. It sounds like it's going to be vastly different in 2019, am I thinking about that correctly that we're going to see a lot more of the earnings come in the third and fourth quarter just based on all your commentary whether we think about the incremental day in the third quarter, we think about anniversary in hep C, as well as vitamin D as well as some other things, so that would just be the first part of my question. And then secondly, also, along those lines, Steve you made this comment around the volume to build throughout the year as it pertains to the managed care contracts, can you maybe just give us some color, is that you are educating the physicians that are being in networks, is it what are some of the things that will have to happen throughout 2019 to give us comfort that you will see that volume?

Okay, Mark. It's for you.

So I'll start with the quarterly cadence Lisa. Yes, you're correct. So as we look at 2019, as I mentioned Q4, should be in we expected an easy compare to 2018 given the significant change enhancements that I referenced also and Steve will comment more color when we submitted, but we expect volumes to build. So while we certainly moved a bunch of offices and got incremental access volumes you know at the beginning of the year, we are continuing to compete that we expect to build more and more over time. And we also have referenced and are anticipating and hopeful that United will announce this preferred lab network. And we're hoping to be included that and we're expecting to be we're all waiting that announcement. We think that will benefit us as well, certainly with United patients. And yes, we have probably not gotten as much into the calendar impact on quarterly cycling in the past, but it is so significant, we're going to provide more transparency, so losing a day in the first quarter, getting a day in the third quarter, certainly well, change the year-over-year impact that is not insignificant. And then finally as you mentioned some of the timing of what we incurred some of the headwinds last year and when we left those and that will not happen in Q1. So therefore, we have some a topic compared to year-over-year in Q1 combined with the cost items that I mentioned earlier, so for all those reasons that compares much tougher in Q1. Last thing I would add is patient concessions. As we mentioned the beginning of the year, we did not anticipate a significant shift to patients away from the payers directly on where revenue would come from. Now that we saw what happened last year, we are building in a higher rate of patient concessions from day one. Obviously, over time as we look at our collections, we will adjust that, but that's certainly going to be a headwind in the first quarter as well. All of those things are built into the guidance that we provided for the year.

Yes, so just to fill out the question around volume growth throughout the year and the first tranche of the first quarter, so what we shared in 2018 is when we announced that we're going to be back in network with United and Horizon and with anthem in Georgia. We started to communicate that to our customers. And so, what we will see in the first quarter is the first tranche, if you will, of those really good customers's request that they wanted us to get back into network and we're ready to flip those accounts as quickly as possible. So you'll see that and second part of this is, why it's going to continue to build, it's not everyone is flipping on day one. I mean, they provide us an opportunity for the rest of '19 and then into '20 and '21 and some of this is that some of the market is still hearing firsthand from us that we're back in network. So the answer to your question what do we need to do is we continue to work on communication. We do this with our sales force, it takes multiple calls to the customer and to be able to flip those accounts typically, sometimes we need to work out some of the IT integration issues to make sure we can get those orders and as a result of those some customers that might be relatively new and that just takes some time. So if you take the state of New Jersey we are essentially we're back in network with the Blue Cross Blue Shield system in New Jersey and with United. We picked up a lot of access, so we've got a number of accounts that were detailing to pick up the gun and a chair for those taking more time than maybe where we only had -- did have 10% of the volume of those loyal customers in that first tranche. So that's what we're going to need to do and we'll do in backup and that will continue in 2020 and 2021 where we still see more opportunities to pick up shares.

Thank you. Our next question comes from Jack Meehan with Barclays. You may ask your question.

Thanks. Hi, Steve. Hi, Mark.

Hi, Jack.

Hi, Jack.

I had a couple of just hoping for some details on both the rev per rack and volumes in the quarter. So on rev per rack down 5.5% by my math, the accounts receivable change was about two points. So if you could reach us on the remaining, what some of the factors are? That will be helpful. And on the volume side, how much did M&A contribute and the moving pieces between weather in calendar would be helpful?

And you're asking weather in calendar in Q4 Jack, or just?

Yes, all related to the fourth quarter.

Okay. So the other drivers of revenue per rack include things like mix, so for instance, our PLS business which, as we explained in the past had higher as lower revenue per rack at a higher growth rate than our overall core business. So that created some headwinds on a rev per rack. And then, what I referenced in terms of the fact that the business experienced an increasing level of denials throughout the year and also patient concessions relative to the prior year. So those things all maybe the tough compared year-over-year Q4 2017 versus Q4 2018, so it wasn't just the change in estimates but it is actually a recognition that that business have revenue per req as we are exiting the year. So those are some of the contributors. We certainly had a little bit of weather impact, it wasn't significant but it was a headwind in that as well. In terms of days, that was a small impact, small negative impact as well. And the other thing was that we had some price changes in the back half of the year that will annualize in 2019 before the end of the year. So you combine all those things and those certainly were the drivers in the year-over-year decrease in rev req.

Thank you. Our next question comes from Kevin Caliendo with UBS. You may ask your question.

Good morning, guys.

Hi, Kevin.

Thanks for the call. So I just wanted to go over the United the preferred network. You made the comment that you hoped to be included. And I would assume that you're planning on being included given that you're now part of your now in network but if you can clarify that that comment a little bit that would be helpful but also I just want to understand what you think is going to actually happen within the United Network come July 1, like what actually changes within the United behavior within their member behavior. You can sort of quantify that? That would be really helpful.

Sure, sure, first of all, one would think when we announced in May that we're back in the United and we're the Nation's largest commercial laboratory that if in fact United were to go forward with a preferred migratory network that we would be included. Now it's up to them to announce that. But we're clearly hopeful and planning on being one of the shortlist of laboratories that are included and in that, what we share with that in the past is that all payers and particularly United I think in my mind is taking the lead on this, is realizing that they could do more to do a better job in laboratory spending and by doing, by having a preferred laboratory network, they're going to tighten up the network and they will work with us on things that we can do to make sure that we drive market share gains. And that would include things like working with your customers that are so customers on benefit designs, it could include working with us on our hospital strategy where it could be in the best interest of all parties to think about a different network strategy within the geography. It also could include things that we're proactively going after certain geographies where we know there's an opportunity for us to gain share. So can announce it before it's announced but we're hopefully, we'll be included as you would expect, we should be given we're the largest national and given that we just announced that network and there'll be a lot of strategies within this to help us with our market deep plans that we've outlined through the course of the last six to nine months. So Mark, you would like to add to that?

I think that covers and obviously we're respectful of United's desire and right to announce, we've applied for that lab network, there is a certain set of criteria as we looked at it, we're very confident. But ultimately we need to wait for United and then in terms of what the particular aspects are I think Steve has captured it well, largely it's leverage preferred, you preferred for a reason obviously it's better value but it's also quality metrics and other things that United is looking for their members and therefore United, the patients and everybody is in the ecosystem who is in that preferred lab network will all benefit if there's more work sent to those better value providers.

Thank you. Our next question comes from Ricky Goldwasser with Morgan Stanley. You may ask your question.

Good morning, Ricky.

Good morning. So two questions, let me start with the payer one, so when you listed the factors that had a negative impact on price in 2018, you talked about payer denial that started in March when national pay is going to lab into first quarter. So what gives you confidence that other national payers are not going to follow the lead of the specific one, you have had conversations with payers and have you factored in that risk in your guidance range?

Ricky, thanks for the question. Actually a majority of the payers are already there and in the managed Medicare space they've been following MLCP for a while and that's really where this emanated from, Cigna adopted it in 2018, the labs remaining significant payer who have to do early on, we obviously have a very close relationship with Aetna, we expect Aetna to move in that direction and certainly that is built within our assumption, we don't know exact timing, we don't know for sure but certainly in our assumptions and our guidance we are expecting Aetna to go there as well and therefore all the national payers to be there.

Thank you. Our next question comes from Ann Hynes with Mizuho Securities. Your line is open.

Good morning, Ann.

Good morning. So where you get your free cash flow guidance, it looks pretty strong despite the reimbursement headwinds, can you let us know what is embedded of that free cash flow guidance, is it how much share repurchase on this embedded, how much is slated to M&A and then secondly and typically you provided guidance range and you just doing minimum this time, is it a reason for that and maybe what are the biggest swing factors that could get you higher than that minimum range? Thank you.

Sure, Ann. So the guidance on operating cash flow of $1.3 billion is obviously commensurate with our pacing around earnings, it is not a significant change in working capital assumes within those number, there is other puts and calls around some tax items and so on and so forth that impact our operating cash flow, that we take into account. But largely the change year-over-year is based on our net earnings. In terms of cash deployment, I talked about the 350 to 400 for internal capital which obviously we view somewhere between 900 and 950 of free cash flow, our dividend now gets us to long way towards our majority commitment to our shareholders but certainly we need to do some share repurchases to get ourselves to that at least 50% commitment and that is built in our expectations to basically this point preventing dilution given our equity program. We're now anticipating in that guidance that I provided a pick up from any reduction in ways down. So with the remaining free cash flow is going to be situationally dependent. So as Steve talked and I mentioned we have an main strategy we're expected to deploy chunk of that cash we're coming into the year with some good carryover based on deals that we've already executed but we just announced the closing of item beyond that we believe there's opportunity deploy more M&A but we're going to use the same financial discipline we always have and if we have a deal that with our money will create more value for shareholders we're going move forward on that deal and in a given point in time we don't have any excusable deal that meets our expectations then we will buy back shares as we have historically. So this point I don't have a specific plan or the balance of the year beyond our majority commitment and others and that's beyond the cash but we are deploying for the -- acquisition.

Thank you. Our next question comes from Brian Tanquilut from Jefferies. Your line is open.

Hi, good morning guys. Steve, just a question for you as we talk about the payer consolidating market share to the top layers on your competitors call they talk about Blue Cross of Florida is a payer that they're having conversations with so. Is that something that we should start thinking about and if you just could give that goes in detail on that contract in terms of exploration and the set up that you have with them right now. Thanks?

Yes. So, Brian, honestly we down pass some record due to specific comment on the specific payer. But what we have said is that were very nice shape. With 19 with our relationships, what we what we will say is that you know going into 19 we should have most of the nationals are in good shape, obviously they are with United where they would got out and the others will it will be a nice shape as well and then also these big states matter of fact, we talked about in their Investor Day, we pick up new strong bigger states United States. If you look at California with New York, Florida and Texas, about 110 million lives are shared very strong and our relationship with the other payer most states are quite strong. So we feel good about that and we're in nice shape in those states. And that is true to go back to your specific question about Florida. We feel good about our cousins in Florida, we have a strong working relationship with Florida Blue Cross Blue Shield and we feel we're in a nice position to deliver on good income share that we talked over all about doing at Quest Diagnostics in the state of Florida because of that relationship, and our great access that we have in Florida.

If I could just jump in real quick, I didn't hear the second part of Ann's question, my apologies, we jumped to Brian, so Ann and others, the reason we've chosen [indiscernible] this year is given some of the uncertainty this year, obviously, to make the call on how quickly we grow the volume, we move access, it's not a negative uncertainty, it's just more variability than we've experienced historically in terms of how the volume might come, where it will come from, et cetera. And so the guidance we're providing with the floor obviously is towards the lower end of our revenue guidance and to the extent that we hit the upper end of our revenue guidance, or even potentially surprise ourselves and beat that. Those would be the upside. So I think we've got our costs down pretty good. Really, the question is around the overall volume growth, the pace at which it comes and the source of which lies because obviously there's variability in the pricing and margin depending on which payer they come through. So that would be the opportunity to do better and hopefully that answers your question on why we chose to [indiscernible].

Operator, next question?

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

Hi, good morning, thanks for taking my call.

Hey, good morning.

I certainly have seen my out-of-pocket diagnostics costs creep higher now that I'm getting some work done on a regular basis, but I may not have noticed this if I was doing a one-off or annual visit. I guess, how do you drive consumers that shop around for their diagnostic vendor when they're at the hospital and if you're told to go to a hospital lab to get a sample, at what point can you intervene or can they intervene to ask Quest to run the tests since basically, it's like how do you give that consumer the choice to send it to the lower cross provider if the hospitals aren't telling you to go there?

Yes, that's a good question. So we've been on raising awareness for consumers around the wide variation, and medical costs broadly, and related to that is a multi-pronged approach. First of all, in some states, we actually provided this at Investor Day. The states are actually providing visibility of a wide variation for consumers. So the state of Massachusetts, they're actually providing on their Web site and if you go on that Web site you'll see the wide variation of what the average commercial rates for Quest Diagnostics are versus hospital outreach laboratories. And the hope is in that state since consumers are picking up a fair share of the costs in health care that consumers will start to become aware of this and bring that information to their physician. And the second part of this is physicians are the advocate, typically, for the patient, even though they have this relationship with the hospital systems and in some cases they sold their practice, but still they realize that this is coming out of their patients' pocket, they realized it could be a wide variation which for a number of a patients it's a considerable sum of money. And for those of us that are reasonably healthy might be once a year, but for many it's not once a year. So it's a considerable portion of our out-of-pocket cost. So we're making sure that the physicians are aware of this as well and then also you know that when you look at what we're doing with the payers the payers increasingly make it visible. And so the payers all reach out to their membership and have campaigns with simple messages like why pay more, and related to that it's not just the lab, you know -- I know many of you realized there's other ancillary services that you have the same issue. So for instance, radiology is getting a lot of visibility. So the help we're getting here as well is this topic in general is getting -- visibility from payers but equally from physicians and then with consumers asking questions. And then once they realize they can ask a question they demand that they [indiscernible] we are in network and therefore it's unacceptable that you tell them they can only go to the hospital lab. And they simply point to -- it's going to cost you extra money if they don't go to Quest, so Doc, why does this make sense? So that's what we're doing about it.

Thank you. Our final question today comes from Matt Larew with William Blair. You may ask your question.

Hi, good morning.

Good morning.

I wanted to ask about your referral partners. You mentioned, Steve, that volumes had traded nicely through first quarter. I just wanted to get a sense for what of that you attributed to potential share gains versus increasing health care utilization at the end market level, thanks?

Yes. First of all, yes, we're here and we're only -- I guess, February 14th, happy Valentine's Day, but what we see in the first five or six weeks of the year as we said we're off to a good start. We haven't been asked about it, but I'll share, you know, we think utilization volumes are stable. We're not seeing big pickups or drops in our good customers. So therefore, we think utilization environment out there is relatively stable. So therefore, the volume is coming from share gains. And that's what we expected. So, good start. We're picking up share, and that's going to build throughout the year.

Operator?

You're showing no questions in queue.

Okay. So thanks everyone for joining us today. We appreciate your support and questions, and have a great day. Take care.

Thank you for participating in the Quest Diagnostics Fourth Quarter 2018 Conference Call. A transcript of prepared remarks on the call will be posted later today on Quest Diagnostics Web site at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at 866-424-7881 for domestic callers or 203-369-0869 for international callers. Telephone replays will be available from approximately 10:30 AM Eastern Time on February 14, 2019 until midnight Eastern Time on February 28, 2019. Goodbye.