Good day, ladies and gentlemen, and welcome to the BioReference Laboratories Inc. Fourth Quarter and Fiscal Year End 2013 Earnings Conference Call. My name is Lisa, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Tara Mackay, Investor Relations. Please proceed.

Thank you, and good morning. Welcome to BioReference Laboratories' fourth quarter and fiscal year 2013 earnings conference call. BioReference Laboratories is one of the largest independent regional full-service laboratories in the country, with focused marketing capabilities in the areas of genomics, oncology, women's health, correctional health and physician office pathology. Leading us on the call today will be Dr. Marc Grodman, President and Chief Executive Officer; and Sam Singer, Chief Financial Officer. Some of the commentary made in this presentation may relate to future results and events. Statements regarding the company's revenue and earnings guidance are based on the company's current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, including: general economic and business conditions; future regulatory requirements and mandated pricing reimbursement; the service, customer and geographic market mix of any particular period; the company's ability to effectively manage its operating cost and collect its receivables in a timely fashion; on the company -- on the level of demand for the company's products and services; and on the company's ability to manage its supply and delivery logistics in such an environment. Additional discussion of these and other factors affecting the company's business and prospects is contained in the company's periodic filings with the Securities and Exchange Commission. I will now turn the call over to Dr. Marc Grodman, President and Chief Executive Officer. Marc D. Grodman: Tara, thank you very much. For those of you who've known me, have been on calls before, you also realize that I don't always start things in necessarily a scripted manner. So one of the things in my thoughts, just a few moments before I started the call is that in many ways, when we think about what it's like for a public company, we've become very much a nation of -zations. And what I mean by that is that we fight the battle constantly on categorization, commoditization, even democratization has effects on us. But there's another word that creates more fear for all of us who both run public companies, those who try to follow and analyze public companies, those who invest in public companies, and that's uncertainty. Uncertainty is something which is harder to be able to deal with. One of the things -- maybe the thing that I feel the best about on where we are now is there is a great deal more certainty, not uncertainty, but certainty about our business and where we are. Many things occurred this year that were hard and were challenging. So at least I think we know where we are. I think we can approach the coming year with a greater sense of certainty. And for clinical laboratories in our business, being the health care service provider, that's one of the most key elements, because we can be able to respond and innovate and move forward. With that sense of certainty is an important element, and that's how we're approaching this coming year. I'd like to turn the call over to Sam Singer to give you some comments and then I will make some additional comments. Sam?

Good morning, everyone. During the fourth quarter of fiscal year 2013, which ended on October 31, 2013, BioReference recorded record net revenues of $192,219,000 compared to $163,487,000 in the fourth quarter of the prior fiscal year, an increase of 18%. Gross profit on revenues for the current quarter was $85,282,000, representing a gross profit margin of 44%. In the fourth quarter of the prior year, gross profit on net revenues was $74,681,000, representing a gross profit margin of 46%. Earnings per share on net income after taxes was $0.40 per share in the current quarter versus $0.46 per share in the prior year quarter. Patient count for the current quarter increased to 2,350,000 from 2,039,000 for the prior year quarter, an increase of 15%. Our net revenue per patient for the fourth quarter just ended was $80.80, compared to $79.66 per patient in the same quarter of the prior fiscal year, an increase of 1%. On October 31, 2013, working capital was $163,554,000, an 8% improvement over the $151,625,000 that we reported on October 31, 2012. Our days sales outstanding on October 31, 2013, was 99 days. Our net revenues were $715,354,000 for the 12-month period ended October 31, 2013, which represents a 16% increase over the net revenues reported in the prior fiscal year. Gross profit on net revenues for the current 12-month period was 200 -- excuse me, $322,539,000 or 45% compared to the prior fiscal year of $276,611,000 or 45%. Income after taxes increased to $45,825,000 during the current 12-month period from the $42,156,000 during the prior comparable period, a 9% increase. Earnings per share for the 12 months on income after taxes increased to $1.65 per share on a fully diluted basis from $1.51 per share for the prior fiscal year. Patient count for the current year increased to 8,549,000 from 7,801,000 for the prior year, an increase of 10%. And our net revenue per patient increased 6% to $83, from $78.16 in the prior year. Thank you, and I'll return the call over to Dr. Grodman. Marc D. Grodman: Thank you, Sam. I believe most of you are well aware of the changes in the reimbursement environment. Certainly, we focused attention on it in our announcement 3 weeks ago, but I cannot start this call without bringing attention to the remarkable achievements and contributions made by the people of BioReference, the expanded family of BioReference this year, which marks our 20th year of 20% compound annual revenue growth. Our leadership and innovation in genetics has never been more apparent with clinical applications and solutions that span the entire field into all relevant clinical specialties. We planned and built our infrastructure to allow for regional expansion in Florida and California, while the New York region has now evolved. I can't refer to it anymore because it's now evolved into a Northeast Mid-Atlantic franchise. We introduced Laboratorio Buena Salud, a differentiating Spanish-first clinical service, branded an entire operation under that franchise, creating opportunities and filling a void. Faced with changers in payer relationships, we touched almost 40 payer contracts that have given us, we believe, relationships with payers that are comparable to any other laboratory in the country. Even though we believe there has been an industry-wide recalibration of reimbursement for laboratory testing from commercial payers, that has led to lower earnings for us this year, reduced guidance for next year, a reduction which we believe has also been observed by others in our space, we believe that the promise of genomic medicine, the potential of personalized precision diagnostics has never been more apparent. We believe that these are areas where we have lived at the cutting edge, standing at the precipice of fulfilling the promise of these great advances in science. We expect that our investments in growth, science, informatics and infrastructure has well positioned us to take advantage of that promise. We remain now, more than ever, a growth company, grounded in innovation. BioReference has contemplated, conceived and implemented not only new testing modalities that have led the market but we've also created franchises, franchises of a health services company that are readily identified by specialist physicians around the country as the source and provider of these new innovative testing services. In our call today, we will provide insight not only into what happened this past quarter but we'll provide more guidance than usual about what we expect for the coming year. The issues impacting the results of our operation this past year were relatively straightforward and based on 3 primary factors: increased expenses related to the integration of recent acquisitions; expansion of new testing initiatives, especially in the area of genetics and precision diagnostics; and change in the reimbursement environment. We prepared for continued growth this year, and those investments will prove essential as we face 2014. We believe that the expansion into Florida and California plus the tremendous opportunity of Inherited Cancers and the growth of GeneDx testing puts us in a very strong position going forward. Although we believe each of these represents a strong opportunity for growth and potentially for stronger growth than initially contemplated, the implementation did not materialize in sufficient time to have a positive impact on fiscal year 2013. The other factor that impacted our results of operations was a change in the reimbursement environment, which we believe only came into focus toward the end of our fiscal year. And which we believe has been experienced by others in our industry. Over the past year, we have negotiated modifications to contractual reimbursement rates, conditions of payments and/or eligibility with dozens of health plans, representing a substantial number of lives nationwide. However, the changes in the environment resulted not only from negotiations with certain payers but also from what we've observed in the payment behavior of payers, in general, in determining what is being paid. The Affordable Care Act affected clinical laboratories directly to a limited degree, but that same Affordable Care Act as well as other CMS initiatives have had a significant effect on the payer community themselves directly. And that in turn, I believe, has had a significant impact on our sector. Reporting results for this completed fourth quarter has been further complicated by the effect of Hurricane Sandy, which occurred in the same period a year ago, making straight year-over-year comparisons challenging, to say the least. So with so many moving parts, let me start by saying, we believe our revenue increase of 17% before taking Hurricane Sandy into account could have been better than 20% over the fourth quarter of last year based on prior reimbursement rates and could have resulted in additional $0.08 to $0.09 of earnings per share. The expenses related to integrating Florida acquisitions and to a lesser extent, our California acquisition into our existing infrastructure along with significant investments into our Inherited Cancer initiative resulted in approximately $0.07 per share charge. We have previously reported that our analysis of the reimbursement of all of our nongenetics sequencing testing business indicated a decrease in overall reimbursement per patient of approximately 4%. As we get further into next year, that estimate may or may not show some additional adjustments. We're not sure at this time in which direction that overall adjustment per patient will move because the payer behavior takes time to evaluate. For us, however, revenue per patient may not be the best tool for evaluating growth since we grow faster and have traditionally grown faster in the higher reimbursed genetic tests than in routine testing. When reporting the results of this past quarter and taking into account the changes in the reimbursement environment, we believe it is incumbent upon us to give you some guidelines for the future rather than trying to fit the current results into our previous financial parameters. That's something that I will try to do a bit later in this call. However, we believe the opportunities to grow our business have never been greater. And although there was some distraction because of payer changes this year, we enter 2014 with managed care contracting around the country that we believe is comparable to anyone in our industry. We believe the opportunities in our regional market have never been better. Our regional market has now been redefined. It can no longer be characterized as the New York super region but as a Northeast Mid-Atlantic region with strong ties and business in Maryland, Virginia, Pennsylvania, Connecticut and Rhode Island, all of which present greater opportunities for growth that we have ever seen in the past. We believe our business model, based on service, support and innovation places us as a competitive advantage within this Northeast Mid-Atlantic region. We have grown our company by offering one-stop shopping to specialty physicians throughout the country. And now with our ability to better deliver on that promise nationally, we believe we are well positioned for the future. This is an advantage that our GenPath Women's Health group has and will continue to exploit this year. We believe we have cutting-edge differentiating solutions for every diagnostic need required by the obstetrician gynecologist, whether it be related to childbearing, infections or cancer. Oncology is evolving and practitioners are merging into larger entities of all kinds. We have developed the means to work with all of them regardless of size or nature. We are working closely with practitioners and hospital pathologists in all settings. Our proprietary informatics and virtual pathology tools like StormPath are satisfying what we see as an unmet need in the market, creating partnerships. We are fortunate to be bringing these services to some of the largest oncology practices in the country, and we believe that this is a scalable, expandable business solution. As I've mentioned in the past, there was a disconnect between the innovative, clinically relevant services our industry offers and the decreasing value placed on those services by the payer community. However, things don't stop. It doesn't mean that physicians do not seek these tests. It doesn't mean that patients don't seek these tests. We believe this is most evident in the field of oncology. As a physician, as a clinician, any patient who has cancer, any family member who I know who comes and speaks to me that, at this point their tumor should be evaluated for characteristics and mutations that make them candidates for drugs, either today or maybe available at the result of clinical trials in the future. Even those who espouse tumor profiling today often see it as a test of last resort after a patient's cancer has already spread or after they've already failed traditional therapies. We don't agree. Profiling need to be done upfront to allow patients to best take advantage of new discoveries and assist in the process of finding new therapies. The reimbursement by payers for these services may be unclear currently, but we believe that providing the most information in the most cost-effective manner is the proper path. However, the burden is on us, the clinical laboratories, because we need to do both of those things, to provide the most information in the most cost-effective manner if we're ever going to fulfill this promise. BioReference takes on that burden. We will continue our leadership in this area, in association with outstanding academic partners as we have for the past several years, certainly in our collaboration with the Cancer Center at Massachusetts General Hospital, as we develop informatics, technical and clinical solutions for the cancer patient. We further believe that the greatest single opportunity in laboratory medicine is in the area of genetic testing. We introduced our Inherited Cancers program at the end of August and the greatest challenge we are currently facing is just simply handling the high demand for our products, which we believe is the result of our exacting standards and the high quality of service. Let me be clear, even though the ties between GeneDx and our GenPath services are very strong, and the operations between our New Jersey and Maryland laboratories have never been more cohesive, GeneDx remains a purely genetics laboratory, and its mission is one that we have wholeheartedly embraced. From the moment we first conceived the value and promise of next-generation sequencing almost a decade ago, the concept of enabling physicians to ask what gene is responsible for what is in the parent -- for what is apparent clinically rather than specifying the gene to be sequenced, we have believed that these services must be provided by a genetics laboratory with trained professionals who, by virtue of their reputation and knowledge, are differentiated and differentiate us in the market. As I've noted on other calls, this is not the forum to compete for business. Investors do not determine which laboratory will gain market share. Physicians do, and this is not the venue for those competitive discussions. I will state, however, that we have 25 marketing representatives just for Inherited Cancers, and that we have over 170 sales representatives who only call on either oncologists or OB/GYNs. While more of the inherited cancer testing will involve panels of genes rather than just 1 or 2 for breast cancer, we believe we were the first and remain the most experienced laboratory in the world for next-generation sequencing. We believe our opportunities in this area over the next 12 or 18 months are outstanding. As I mentioned before, this fourth quarter was a transitional quarter for us. It represented a period when we had both an expansion of our infrastructure along with a decrease in reimbursements for many of our tests, rendering the comparative process with other periods, especially ones affected by Sandy, not particularly insightful. However, there are some comments about the quarter I'd like -- I believe are pertinent. Expenses did go up with regards to the Florida and California locations as a result of our integration process and GeneDx, especially with regard to Inherited Cancers, however, given the changes in reimbursements that we've been able to understand, we've begun the process of a thorough evaluation of every line item and expense to seek reductions commensurate with this new environment. We need to adjust to this changing reimbursement landscape by intelligently and efficiently identifying areas where we can reduce expenses without affecting customer service and support or innovation. We've already identified such areas and have begun implementing such expense reductions. These steps will take some time to produce improved results, but we anticipate gains progressively throughout 2014 as a result of these changes. We are encouraged by the strong volumes we are seeing in all aspects of our business. We are composed of several franchise marketing groups, and each has shown opportunities for growth. We believe the industry is and will remain under pressure, but that pressure we see opportunity based on a combination of all our initiatives we look forward to the upcoming year. Growth alone will not be sufficient, and infrastructure expansion excluding genetics and R&D to provide new testing will be, will have to be curtailed. Marketing expenses increased reflecting the opportunities in genetics and while expenses will be tightened, the number of people who work in the field will definitely not be cut. SG&A expenses were higher. Many of these expenses were already accounted for with the expansion of infrastructure in Florida, California, of course, at GeneDx. There are some items here that need to be highlighted. Over the past year, either due to acquisition or our own organic growth, we now have almost 675,000 square feet of laboratory administrative space, not including draw stations, which represents an increase of almost 35% during the past year. We also recognize that there will be increased legal fees over the coming year. There are 2 lawsuits that will take up the bulk of these expenses, one involving Horizon Blue Cross Blue Shield in New Jersey, which we just filed yesterday, and the other involving a patent issue with Myriad Genetics that has been ongoing for the past few months. BioReference has been an in network provider to Horizon's PPO subscribers for more than 20 years. Some of you may remember that we had some issues in 2007 when this relationship was terminated temporarily. The central claim to the lawsuit arrives in our providing laboratory services since at least 2008 for members of New Jersey -- of Horizon's New Jersey direct plan. These subscribers received benefits under a program that Horizon has bid, promoted and represented to be a PPO product for state county municipal workers and teachers. The lawsuit alleges that despite these public representations, Horizon has improperly treated the very same program, New Jersey direct, as a managed care program in its dealings with us, thereby costing BioReference more than $20 million in unreimbursed services and depriving state beneficiaries of valuable rights and benefits to which they are entitled. I would like to note that we have not, not recognized revenue for the vast overwhelming majority of these services at issue in this litigation, and that this is an issue -- and this is a local issue between us and Horizon Blue Cross Blue Shield of New Jersey and does not involve any other payer relationship. The other litigation involves Myriad Genetics and our performance of certain test for genes that put patients at risk for cancer. In this scenario, we are 1 of 7 laboratories so far that have been named as defendants. I think we've made our position on this litigation pretty clear in the past, and that you can be assured we will aggressively defend our interests. We are well prepared and comfortable with our position in this matter. Bad debt in the fourth quarter this year was slightly higher at 8.1% from a year ago, when it was 6.9%, but we believe it is in line with the way it has been running throughout the year and is slightly down from the past 2 quarters. The shifts in reimbursements, insurances, demographics have changed over the past year, but we anticipate that going forward, bad debt should be in about the same range as it is in the current quarter. DSOs are higher this year. We've been very clear about that. After more than 6 years of steady improvement to changes in the overall reimbursement environment and in particular in molecular reimbursements and the grandfather clause for pathology services and dozens of new contractual relationships as well as the end of a relatively efficient manner of paying claims under the Blue card banner have all had their effects. We believe this is reflective of what challenges the entire industry has faced. In our experience, payment for molecular testing continues to lag for CMS, Medicaid and other government programs like TRICARE. In addition, payments to us for genetic testing as more of these tests are billed to commercial payers are now taking somewhat longer with more claims being reviewed, often requiring additional clinical information, which in to itself is no problem. This, of course -- this is, of course possible, but time consuming. Finally, the net effect today of billing 66 specific Blues plans directly rather than only a handful means that a relatively efficient method of billing has been replaced by a time consuming and sometimes inconsistent method of paying claims. Furthermore, there has been an inconsistent practice of paying laboratory claims directly to patients in many of the Blues plans around the country, frequently at far greater amounts than we, as a laboratory, would ever expect to be paid. This has required us to notify patients to send money that they have received from the payer making a cumbersome process even more complicated. However, it is our expectation that as the plans become accustomed to working with more providers, both in and out of network, these delays will decrease, as we become more comfortable working with this new group of multiple providers, that these delays will decrease. However, for the current year, they have presented a substantial challenge to us and to everyone. My sense, my sense now, is that there is a little more certainty in where we are, but I can't -- we can't be completely assured that these difficulties have bottomed out. Although the first quarter, just because of its characteristics, of what it's like in terms of the months that are involved in it, has historically been problematic, it's still my expectation that as we become more familiar with the payment behavior of these new payers, we can still go back to start the improvements that we've been able to see in the past. Given the changes in net income and industry-wide challenges in collections, it's not surprising that our cash flow, while positive, was simply not as strong as last year. Nevertheless, cash flow from operations was over $17 million, and actual collections from all elements of our business appear to be stabilizing to a consistency that we expect will continue into the coming year. Although it is not our practice to provide quarterly guidance, I want to comment on 2014 since there are a number of moving parts that need explanation. Our guidance is complicated by the combination of an increasing infrastructure and increased infrastructure, as well as changing reimbursement environment. We have previously said that we expect to grow in net revenues, patient count and net income by 10% in fiscal year 2014. We stand by that guidance, except to say that each will grow -- will stand by that guidance. However, that plays out on a quarter-by-quarter basis will be somewhat different than we've seen in the past. The first quarter will be the most challenging. In prior years, the first quarter has always been sensitive to increases in infrastructure, increases that build up over the year, but are then confronted with rates that are lower than the run rate revenues due to the end-of-the-year holidays. In this case, we are confronting higher-than-usual infrastructure expenses and lower-than-usual reimbursement levels. In addition, our year-over-year comparisons between the first quarter of fiscal year 2014 and fiscal year 2013 will be against a very strong 2013 quarter results despite the effect of Hurricane Sandy. In addition, we do not expect to maximize the potential of revenue for many of our new programs including Inherited Cancers initiative until later in the fiscal year. As a result, although we expect to see an increase in revenues in patient count in the first quarter of fiscal year 2014, we anticipate net income will lag compared to 2013, and we expect it will be in a range of about half of what the results were by the comparable quarter with the equal relative increases in both direct and SG&A cost. In the second quarter of 2014, we expect to continue our revenue growth. We also begin to expect to approach, not quite, but to approach our second quarter in 2013 earnings on a comparative basis. By the third and fourth quarters, we expect to show substantial improvements and more clearly seen toward the end of the year. There are other issues we need to address. The cuts in pathology codes that were proposed by CMS in July 2013 were not included in the new schedules released in November. As an industry and as a profession, we made our case that these changes would prove devastating to patients, and I want to thank all of those who assisted and all those who heard our arguments with an open mind. Other proposed changes to this clinical laboratory fee schedule by CMS will be considered with the SGR fix in 2014. And based on current information, we don't expect those changes to have the same potential material impact that the proposals which were forwarded in pathology back over the summer. In addition, our board, with the approval of our primary lender, has authorized a $2 million share buyback plan over the next 2 years. We believe it's important for us to have this in place. However, over the next year, we will determine the best use of cash. My hope is that the decision by CMS is a harbinger of the future. It is incumbent upon clinical laboratories to be cost efficient, but not at the expense of hurting or denying care. We're on the brink of great things, of really leveraging the technological advances to make genomics accessible and clinically relevant. We will make that case, lead that fight and challenge those who will stand in the way of innovation. We are encouraged by the strong volumes so far in the current fiscal year in all aspects of our business and encouraged by the positive indicators we have seen. We will not be intimidated by the recalibration of reimbursement revenues. We have a track record of 20 years of 20% compound annual growth, and that was accomplished in the face of 18 years of declining reimbursement rates. We have dealt with this trend in the past and we'll make the appropriate adjustments to deal with it in the coming year and years. Timing and conditions out of our control in some way worked against us in the fourth quarter of '13, but we believe that timing, innovation, our investment in people, technology and clinical solutions, as well as our continued commitment to providing complete solutions in cancer, genetics and women's health, will work in our favor as 2014 progresses. I apologize I took a little bit more time today. And I want to thank all of you for being on the call, and I'm more than happy to take any questions.

[Operator Instructions] Your first question comes from the line of Amanda Murphy with William Blair.

So Marc, just a -- questions on your comments around reimbursement. So, obviously, a lot of labs have talked about the reimbursement environment not being so great, but I just am trying to figure out what specifically changed this quarter to drive this industry-wide reset, if you will. We've seen it before a few years ago, but I'm just trying to figure out what catalyzed something this particular quarter that would be more industry wide? Marc D. Grodman: I don't think you could go in and point to one thing which happened. I think that if I had to go back to any one point that I would point to, if you simplified into one thing, I would probably go in and say the Affordable Care Act. As I said in my comments, Affordable Care Act really did not go affect laboratories very much directly. As part of the negotiation in 2010, we, as an industry, agreed and worked with the Senate Finance Committee to have certain cuts, the CMS schedule was part of it. But I do think that, at that time, there was a great deal of burden that was placed on multiple insurance companies, and there was uncertainty for them on how they were going to be able to deal with the changes going forward, which made everything, in some ways, fair game and made all providers at risk. What's interesting, when you read about it, is not the question of how we as laboratories were affected by reimbursements. But if you go into other sectors, you realize how everyone is talking about lower reimbursements. It created an environment where every cost structure, every provider relationship was somehow looked at. I would not be surprised if, in fact, that some of the motivation that goes even with the changes in the Blues program were motivated by those changes in 2010 in anticipating the greater burden placed upon them as they had to go in some way increase services in many of their plans and so were limited by the medical loss ratios. So when we now look back on it, I think we have better clarity, which is why I talked about certainty, than what we did 3 months ago, 6 months ago, seeing this really being all industry wide and finding ways to be able to do it, opportunities for renegotiation. In addition, renegotiation is really misleading because you are not going to be going point-by-point. Because what you're really dealing with is the behavior, what gets paid in different plans. Every -- for instance, every Blues plans has multiple plans within it, and all have different payment characteristics. So in addition, the one point that I really have to mention as well is that the effect in molecular coding that we had with CMS is not the issue of what it created, but it created an environment that allowed them to make changes in molecular testing pricing. Maybe not a lot specifically, but it created [ph] to the environment of uncertainty. So it's great to go and point to one thing, but it's not. The reality is, is that there was a movement and there was an incipient event that kind of created for the industry pressure. And the one other point about it is that when one is pressured, the other was pressured. When one group lowers their numbers or their behavior, they kind of affect what the other ones do, so it begins to cascade. That's why what you really see now is I think most of the people in our business and people in other providers as well who comment on it's not one contract, but it's the change in environment. My guess, my best guess, is where we are now is that we've kind of seen this effect that, as we look in the coming year and we all are, we kind of see where this has been and there has been this -- which is why we use the term recalibration that has occurred. That things have just come in and started to come in lower. We've seen this before. When I have been asked about what happens to reimbursement rates, I always say that -- I never say that -- well, no one could ever say they go up. And when people say they're flat, they don't really say that. We say that they always slowly decline, and that's what happens with any health care services. But sometimes, you have precipitous drops like there was in 2008, with the changes, the disruptive changes about exclusive arrangements for national laboratories. I think we see the same thing this year, but I think a lot of the start or the match that lit it off was a little bit more subtle.

So the 4% down, is it right to think about that -- I know you said excluding sequencing, so that's basically excluding GeneDx? Marc D. Grodman: That is at that point, when we looked at that. We did that as an analysis of where we are right now, and that's a bit of a guide as to where we think we are. As we also said, there may be some changes to what that is. But that's what we saw and we feel comfortable about in the most recent quarter. And that's where I think where we are right now, but that is what we mean by that.

Yes, okay. And in terms of the thing you just mentioned about, it could be -- the 4% could actually change. What specifically do you see that could make -- I'm assuming you mean get worse but... Marc D. Grodman: What I think would make -- that they paid less.

Okay. So the 4% down... Marc D. Grodman: And if they pay more, it'll be better.

The 4% down, that's assuming that the physician fee schedule rates that came out are -- go through, correct? Marc D. Grodman: Yes. Those are -- I think the big question that we talked about, even though we talked about it in the announcement was that the physician fee schedule changes were not going to go through. We were really, I think -- I don't know whether -- that was an important issue. I think, as you know, we all worked incredibly hard on that issue just to have people know that what they were proposing, that the policy has real consequences for people's lives. And those changes that were really proposed were not really cuts, they were policy changes in methodology about how you pay mostly for cancer testing. So you have those, I think, that are -- that policy change is simply not there. We've had no indications that the policy will be revisited. You can't rule out that there will be tests that are affected all along. You can always isolate one test. What made these pathology cuts, which are not going into effect, that much more challenging was that they were affecting all cancer diagnostics. The laboratory industry has a remarkable ability to adapt to reimbursement changes. It may not always be a happy thing on a quarter-by-quarter basis, but we have that ability to go and react to it. The proposal from CMS that did not go through was kind of a different kind of story, and that's how we look upon the changes in the coming year and the current SGR fix that will happen.

Got it. So okay, if I assume that the GeneDx -- basically that the reimbursement's down about 4%, maybe a little bit worse next year, that would suggest that GeneDx would have to grow quite a lot to sort of offset that? So, I guess, I'm just curious what do you -- do you have any comments around that? I know you talked about the inherited cancer program ramping in the back half but maybe I'm thinking about it wrong. Marc D. Grodman: No, I'm not -- I think that we've said all along that we've had a great deal of success. We have had a great deal of success and growth this year in the genetics area. You know that. You've been there. You've seen us. You've seen the expansion of what we've done. You've seen people working and reviewing cases. You've been there and you've seen the investment in infrastructure and just the pure volume of cases that have come in over the year, and this is a -- beyond that, I think these are all great opportunities. So there's nothing that we're saying here now that we haven't virtually said on every single call this year is that we believe in this, we believe that this is a more than a group of incredibly committed geneticists. It's more than that. It's a commitment to be able to go in and has been to go in and assume that mantle of really fulfilling this promise of genetic medicine. And everything that we've done over these years and, yes, in fact, the growth that we've seen with them over this year has been a very strong part of our growth. And we support them, we salute them, we give them all the support that we can to help make this a reality.

Okay, and then just last one. You've obviously been pretty vocal about your inherited cancer program and BRCA, specifically. So I'm just curious, now you've been on the market for a few months here, can you just give us a perspective on -- I don't know if you know a specific market share, but just how you're doing there and then how you expect that to ramp? And then, lastly, obviously, CMS has come out with some new reimbursement that has interesting implications, I think, both for BRCA specifically, but also more broadly for the industry, including from a process perspective as well as share reimbursement. So curious if you can give us an update on that. Marc D. Grodman: Okay, Amanda, of course. First of all, my comment is that, as I've said probably about 6 times in my speech, in my comments, we see an outstanding opportunity and a great response to what we've done. I've said that we had been doing next-gen sequencing for almost a decade and we're leaders in this area and that we have a reputation at genetics laboratory that, I believe, is second to none. We're heartened by this, and the greatest challenge is to go do all the -- to fulfill that promise. So we're very heartened by this because it's a continuation of our mission, number one. Number two, in terms of we don't go in there, we don't talk about that, I do not believe it is appropriate for us to talk about comments and numbers in what we're doing. I don't want to base it on other companies. I won't do that, it's not competition. I'm not sitting before doctors, we don't talk about whose rates or this or that. Those are mechanisms for investors. It's not for doctors in what they choose to care for their patients. So I won't get in that discussion. However, I will -- however, in terms of the Medicare rates, I just may not be really good at this, I don't really get it. I mean, who does Medicare cover for BRCA? I mean, the payment carrier [indiscernible] a lot of these people. But if I remember, they cover women 65 to 67, relatively small sliver of business. I can tell you that a lot of the stuff that we go in and get in is simply not BRCA, it's not Medicare business. And this is a well enough reception [ph] of test where payers are going to have to come up with their own value and sense of value and not just blindly go link it to a reimbursement rate. So I may miss it and not going to say that I haven't missed it in the past, I just don't see it as an issue. It's women 65 to 67, and there isn't a payer in the world doesn't know about BRCA or now about inherited cancers. And they can make their own decisions. When you see linking to a Medicare rate, it's because they have something where they really don't know. Believe me, the payers know about inherited cancers.

Well, I think the assumption is just like you saw with the [indiscernible] passcodes that people at least look to Medicare and some of the MACs that have been more forward thinking in terms of reimbursement in setting that level. So... Marc D. Grodman: And as I said before, I think that you're right. When it comes to very rare genetic diseases, those are issues that we find out. But, I don't really think that there is a payer, an intelligent payer in the country who is necessarily -- they know BRCA testing, specifically. They're getting to know inherited cancer panel testing, and that's kind of somewhat different. The payers have dealt with this. All these people have -- the people and the existing provider has had a great number of individual payer contracts. And very rarely, their numbers are based off of that. So whereby, yes, there is an extent, although there are a lot of payers who really feed off their own schedules about what they do as we well learned as we're now billing 66 Blues plans around the country, although many of them, they work off of other plans, most of the plans really know what they're paying for. Many of the plans have negotiated separate pricing. I mean, if there's any effect that's happened with it is that there was one fine laboratory that was out there that was incredibly successful in negotiating payer contracts specifically to that test. And it's very rare where, in fact, when you have a known entity, a known well-vetted entity for a test, where a payer comes in and says, "You know what, I just read Medicare should cut that, I'm going to cut you also now." That discussion really doesn't take place. So, as I say, I may be off, I don't really see it as that big a deal. I think the real money in terms of Medicare is a relatively sliver of population. I think that there are plenty -- I think as prices come down, and they will, prices will come down because of competition, and that's the way that it should be. If you had to go look at the impact of 2 different effects, the effect of a Medicare saying they're going to pay one thing over another or other people competing, all good laboratories competing at competitive pricing, you'll see the competition is going to have a greater effect of bringing the price down than the Medicare ruling.

Your next question comes from the line of Raymond Myers with Alere Financial.

Marc, I wonder if you might discuss the impact of the more challenging reimbursement environment on some of your smaller competitors, the small regional labs and the hospital labs. And what impact does that have on their ability to provide service? Marc D. Grodman: Unfortunately, I do think that small laboratories are affected. I think that it's not a good place to go be. One of the things -- one of the comments that I made, and I think those of you may have seen I did an editorial for The Hill talking about Medicare changes and the proposed changes that were going out, and the fact is that there are 80-20s. And the 80 is that 80% of Medicare laboratory services are provided not by the 2 major laboratories, but by all the other laboratories. So that's not the Medicare dollar, and I think that those laboratories are all going to be affected. I'm not sure where -- hospitals will be affected because they often are able to negotiate rates that are not linked to the laboratory alone but linked to other services they provide. And for many of them, they have more to barter with because they get a lot of money for other services they provide that are a lot more essential and their bargaining position is a lot better. In addition, there is, unfortunately, a very bad habit in our industry where you have some players who go in at alternate times who seek to go in and gain share for success in the short term and negotiate prices that work out not to the best interest of the entire industry. That's an unfortunate circumstance. So I do think there's pressure on smaller labs. It's unfortunate because small labs provide innovation, but I think hospitals will be affected less so.

And could you describe what you think the likely laboratory industry reaction to this new competitive environment is likely to be over the next year? How is it that they will adapt and change? Marc D. Grodman: We -- as we -- what we've -- as most of you know, I've been doing this quite a while and been through the '90s which, as much as it's been a challenging year, the '90s were horrible, and you adapt. You have to grow. I -- you have to grow, you have to become more efficient where you can, you pick your spots, you may be out of the business if that's going to be to your advantage, that presents opportunities for many of us. But you simply have to be able to go in and adapt to it. We have multiple ways to be able to do that. I will tell you one thing and that there are certain really pure dichotomies. When you're faced with this, I would far rather face this environment as a growth company. One of the comments that I made is that if you look at now 20 years, there is no one in our industry who will not go in and say that reimbursements have declined, they clearly have. You adapt to the growth, you find ways to do it, and I'd rather face these challenges as a growth company. And so it's a way that people are going to have to find a way to be able to compete in that regard.

All right, great. Well, addressing the growth, maybe could you touch on how the California and Florida lab acquisitions are contributing? And then, also, maybe the Laboratorio Buena Salud, give us an update as to whether that's meeting your... Marc D. Grodman: Sure. Laboratorio Buena Salud is important. It's been very important as we have been able to work with a number of different local groups, and certainly it's helped to work with a number of local plans of marketing in that area. We've been able to bring in business in certain of the areas that we've done that. It's overall -- added to our overall growth. It will be a big part of what we had been doing in Florida. It's a separate identity, another franchise to build with. And though we don't break out what those numbers are, we've been gratified by that and by the work brought out by our very specifically branded Laboratorio Buena Salud salespeople. We think that's important. In terms of the other acquisitions, it's really very simple. We still grow as a specialty laboratory. But more and more as we talked about, a good number of our growth comes from doing routine business in specialty laboratories. It's our strategy. And as a result, a lot of that work has to be turned around quicker, sooner, and we're able to go do more of that and offload that off of what we do, the work we do in Elmwood Park and in Maryland gets to be very specialized work. We're able to offload more of the -- more otherwise routine work in those local markets, and that makes it a lot easier, better and more efficient to be able to do it. Plus that local presence has some real effect. In addition, every now and then, there's the ability to be able to go in and be able to grow with relatively larger chunks in local communities in -- both in California and Florida. These are great markets. So it gives us the ability to really expand for the opportunities that we've had. One of the issues for the structure for -- we've had to put into Florida that's really very important is that when we can just do this as an acquisition to bring in more business there, we created BioReference of the South, Florida. So a specimen that comes in from Florida is -- it was processed there and [indiscernible] there, all the equipment, all the reference renders, all the informatics, everything is there, the same as if it was brought up over here. So it's a local lab that has all the background and capability. That's one of the reasons why the infrastructure took so long, to be able to go build was expensive as it did. But as it was, it was an investment that we can now start to really take advantage of in a great market.

Okay. And if I could, just one more. Could you touch on what you expect the impact of the Affordable Care Act might be beginning in calendar Q1 now? Marc D. Grodman: I think, as I've said before, in the indirect rather subtle way I mentioned it, I think that the greatest effect on our industry looking back has been the indirect effect of the Affordable Care Act on payers. I mean, I really believe that this is something that was started a while ago. So in terms of this, do I expect to go in and see more patients enrolled that's going to go affect us, I've never been one to really see there was going to be a great direct effect on clinical laboratories. It's the indirect effect that we've just really started to talk about that I think was the major one. I don't see more patients coming in and affecting us. Will we see more patients enrolled in Medicaid? It depends on the state. I don't see it having a real big effect this year, honestly, Ray.

Your next question comes from the line of Mitra Ramgopal of Sidoti. L. Mitra Ramgopal: Marc, I was just wondering if you can give me a sense as to your take on the reimbursement environment, in that do you see the coming year as a onetime reset, or as we look out beyond that, there could be more headwinds for the industry. Marc D. Grodman: My sense about where we are having -- unfortunately having been through this a few times, is that, as I said, I do see this as a recalibration. I mean, this occurred in 2007 and 2008 when there were big shifts by some of the major insurances and working with one lab and just excluding another laboratory. And then, the other insurer went out and worked with one laboratory and made sure to exclude the other one. And in doing it, they were reimbursing rates that were there, that were given, that will lower -- that reset the market. And then, the position and the question then placed to everyone else was, take it or leave it. And that created a reset, a recalibration, but it was more directed to that behavior. This was a more subtle one because it involved a whole lot more insurance companies. My sense, when I started out my talk, is that I think there's greater certainty today than what there was over the past year, just kind of see what happens with it. And I do believe that this level that we will bottom out at, if you will, and that people will talk about, I'm sure that my competitors will talk about, will be that reset, and that my expectation now, can't be assured, but given just the sense of where we are, that we'll go back to this very rather consistent slow downward trend over the next few years. So my sense is that this is where we are right now, and that is a steep drop that will be followed by a very slow decline. It's similar to what happened in '07 and '08. L. Mitra Ramgopal: And does this in any way alter your acquisition strategy or the way you look at initiatives towards expense reduction, et cetera, being more aggressive or more gradual? Marc D. Grodman: I think that we have looked and we will look. I mean, I'm not going to -- I never quite believe in the grandstand of announcing cuts. I think that you have to go work out area by area, opportunity by opportunity. It's not something that I would necessarily share. We've already started that process, and we have to go in and work to be more efficient, but we have to be very careful not to go affect growth. Acquisitions, really, no. It's -- we wanted to be able to go in and build some regional capability in key states. We knew there was something that we needed to go continue growth, and we planned that a while ago. And it took a while to do it, and we do it -- we do it in a very -- the right way carefully, and we've done that. I think that nothing rules out acquisitions. It just has to make sense. They have to go fit into our overall business plan. We don't buy customer lists. We don't buy just for -- to get top line growth. We buy for capability and infrastructure. Also, we don't have to go buy -- and we buy labs that are kind of okay. They don't -- maybe not incredibly profitable because it's not what -- it's -- we're not buying them for the customers. We're buying for what we can make out of the infrastructure that we're acquiring. That's why we did what we did in both in Florida and California, and we just have to be careful. But no, we would not rule out acquisitions. We've been disciplined about that in the past, and we'll be both opportunistic and careful about it in the future. L. Mitra Ramgopal: Okay, very helpful. And just quickly on DSOs, I noted it did bump up a little towards the end of the year. As we look out in the next year, obviously, I'm sure you're trying to get that down as quickly as possible. Marc D. Grodman: We are. My only concern that I have about it is that I do have a sense, given where we are and where we have been right now, what it's going to take. It takes a lot of relationships with a lot of payers. I do have a sense that we have, in sense, bottomed out; my only proviso to that, the only proviso, that the first quarter, mechanically, is always a tough one because usually, you can sequentially get higher revenues, but the first quarter always drops because of the November and December business. That's my only proviso about that. But I get a sense that, from this point on, whether it be now or whether it be where we are in the first quarter, that we can go back to making the improvements, that things have bottomed out and leveled out with the issues that are there. We know what they are, we can try to go and make them better and we can go back to that period of time. I just don't know if it'll be in the first or the second quarter. I mean it's -- I'm sorry, I don't know if it will be now or in the first quarter.

I would now like to turn the presentation back over to Dr. Marc Grodman for closing remarks. Marc D. Grodman: I want to thank everybody. I know this has been a tumultuous year in laboratory, but it's also a year of great opportunity. I want to go back to what I said before, 2 points: One, we live in the promise of what laboratories can do, the promise of genomics, the promise of affecting people who have cancer, the problem [ph] of bringing diagnoses to a more personal light, one. We're leaders in that area. Two, there is far more certainty today than what there was on other calls that we've had. And many of that, because of that, we feel much more positive about where we are at this moment. We've been here before, we'll go in and, from this point, continue to be able to go in and grow and innovate. Wish all of you a great holiday season, a happy healthy new year. I look forward to speaking with you in the coming year. Bye-bye.

And, ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.