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Quest Diagnostics' Turnaround Challenge

Quest Diagnostics was born into the troubled world of reference laboratories. It is cleaning house internally. But its bigger hurdle, one facing all reference laboratories, may be creating a viable role for itself in a world dominated by new customers with different needs.

It's been a rough year for reference laboratories. Several larger ones-including Physicians Clinical Laboratory Inc., and Meris Laboratories Inc.-are in Chapter 11 bankruptcy or close to it. Laboratory Corp. of America Holdings (LCA) can't meet interest payments on its debt and is undergoing a financial restructuring. The largest reference laboratories have all had recent management changes at their most senior levels. And relief doesn't appear to be in sight. The government continues its efforts to cut pricing and utilization of tests, and third-party pricing pressures remain, as competition from hospital laboratories and integrated delivery systems grows.

In the midst of this turmoil came the spin-off in January of Quest Diagnostics Inc. from Corning Inc. [See Deal]. Formerly Corning Clinical Laboratories Inc., Quest had revenues of...

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