Medicare plans up to 15% cuts on lab tests from 2027; Quest falls 4.2%, Labcorp 3% despite reaffirming its outlook

Shares of the two biggest U.S. lab testing companies fell on Tuesday after Medicare posted preliminary payment rates that would cut what it pays for hundreds of lab tests. Quest Diagnostics closed at $234.71, down 4.2%, and Labcorp closed at $311.41, down 3.0%, according to Nasdaq.

The Centers for Medicare and Medicaid Services posted the preliminary rates on Monday under the Clinical Laboratory Fee Schedule, MedTech Dive reported. CMS found Medicare has been paying about 16% more in total for lab services than private insurers, and estimates the changes will save the government about $1 billion a year. By law, no test's rate can fall by more than 15% in a year through 2029, and CMS said it would phase the reductions in. Final 2027 rates are expected in November.

What the first headlines got wrong: this is a 2027 story

Some early coverage, including a Seeking Alpha report, described the cuts as starting in 2026. They do not. Labcorp's annual report states that reductions are frozen for 2026 and capped at 15% a year for 2027 through 2029, and the company's filing on Tuesday describes the new rates as applying from 2027 through 2029. Nothing changes in what labs are paid this year.

What makes it bite is the stacking. The lab industry group ACLA said the proposal cuts rates on almost 1,200 tests, with 775 of them taking the full 15% in 2027 and more reductions in 2028 and 2029. A test Medicare pays $100 for today would pay $85 in 2027. If it took the maximum cut in all three years, it would pay about $61 by 2029 (100 x 0.85 x 0.85 x 0.85). ACLA also said the rates rest on data from just 2% of labs paid under Medicare Part B in 2024.

The number behind the number

Labcorp said on Tuesday that it had already assumed continued Medicare pricing pressure when it set its 2026-2029 targets at its September 10 investor day, and it reaffirmed them: revenue growth of 5% to 8% a year, adjusted earnings per share growth of 8.5% to 11.5% a year, and 75 to 150 basis points of adjusted operating margin expansion by the end of 2029. It said it will give the effect on 2027 in its guidance in February 2027. In thin after-hours trading the stock was at $306.64 at 5:52 p.m.

How much is exposed? In its 2025 annual report, Labcorp reported that Medicare and Medicaid together made up 8% of its $13.95 billion of revenue, or roughly $1.1 billion. The part CMS's lab fee schedule touches directly is smaller than that, because Medicaid rates are set by the states and not every Medicare dollar is a fee-schedule test. Third-party payers, the category that covers private insurers, were 37% of revenue, several times larger.

Who it actually hits

The national labs spread a Medicare cut across a much larger private-insurance business. The businesses with less room are the smaller ones: independent regional labs, hospital outreach labs that test for local doctors, and physician practices that run their own in-office testing. For any lab where Medicare patients make up a large share of the testing, a 15% cut on a big slice of its test menu comes straight off revenue while rent, staff and reagent costs do not fall. The practical step for those owners now is to price out their own Medicare test mix against the preliminary rates before CMS finalizes them in November.

Sources: MedTech Dive, including CMS and ACLA statements; Labcorp SEC filings; Seeking Alpha; Nasdaq. This is market information, not investment advice.