10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-12215

Quest Diagnostics Incorporated

Delaware			16-1387862
(State of Incorporation)			(I.R.S. Employer Identification Number)
500 Plaza Drive
Secaucus,	NJ	07094
(973)	520-2700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	DGX	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 15, 2020, there were outstanding 134,765,984 shares of the registrant’s common stock, $.01 par value.

PART I - FINANCIAL INFORMATION

		Page
Item 1. Financial Statements (unaudited)
	Index to unaudited consolidated financial statements filed as part of this report:
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019	3
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	5
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
	See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”	45
Item 4. Controls and Procedures
	Controls and Procedures	45

1

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(in millions, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues	$	2,786	$	1,956	$	6,435	$	5,800
Operating costs and expenses and other operating income:
Cost of services	1,580		1,264		4,071		3,773
Selling, general and administrative	396		362		1,103		1,108
Amortization of intangible assets	27		23		77		72
Other operating expense (income), net	65		(6)		8		(21)
Total operating costs and expenses, net	2,068		1,643		5,259		4,932
Operating income	718		313		1,176		868
Other income (expense):
Interest expense, net	(42)		(44)		(124)		(133)
Other income, net	77		1		74		13
Total non-operating income (expense), net	35		(43)		(50)		(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753		270		1,126		748
Income tax expense	(177)		(62)		(269)		(175)
Equity in earnings of equity method investees, net of taxes	15		18		33		48
Income from continuing operations	591		226		890		621
Income from discontinued operations, net of taxes	—		—		—		20
Net income	591		226		890		641
Less: Net income attributable to noncontrolling interests	23		11		38		36
Net income attributable to Quest Diagnostics	$	568	$	215	$	852	$	605
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$	568	$	215	$	852	$	585
Income from discontinued operations, net of taxes	—		—		—		20
Net income	$	568	$	215	$	852	$	605
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations	$	4.20	$	1.59	$	6.33	$	4.33
Income from discontinued operations	—		—		—		0.15
Net income	$	4.20	$	1.59	$	6.33	$	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders - diluted:
Income from continuing operations	$	4.14	$	1.56	$	6.25	$	4.27
Income from discontinued operations	—		—		—		0.15
Net income	$	4.14	$	1.56	$	6.25	$	4.42
Weighted average common shares outstanding:
Basic	135		135		134		135
Diluted	137		137		136		136

The accompanying notes are an integral part of these statements.

2

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(in millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	591	$	226	$	890	$	641
Other comprehensive income (loss):
Foreign currency translation adjustment	10		(6)		(6)		(6)
Net change in available-for-sale debt securities, net of taxes	—		8		—		8
Net deferred gain on cash flow hedges, net of taxes	3		1		3		2
Other comprehensive income (loss)	13		3		(3)		4
Comprehensive income	604		229		887		645
Less: Comprehensive income attributable to noncontrolling interests	23		11		38		36
Comprehensive income attributable to Quest Diagnostics	$	581	$	218	$	849	$	609

The accompanying notes are an integral part of these statements.

3

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(unaudited)

(in millions, except per share data)

	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,605	$	1,192
Accounts receivable, net of allowance for credit losses of $27 and $15 as of September 30, 2020 and December 31, 2019, respectively	1,421		1,063
Inventories	205		123
Prepaid expenses and other current assets	117		112
Total current assets	3,348		2,490
Property, plant and equipment, net	1,544		1,453
Operating lease right-of-use assets	535		518
Goodwill	6,880		6,619
Intangible assets, net	1,192		1,121
Investments in equity method investees	480		482
Other assets	164		160
Total assets	$	14,143	$	12,843
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,686	$	1,041
Current portion of long-term debt	555		804
Current portion of long-term operating lease liabilities	148		145
Total current liabilities	2,389		1,990
Long-term debt	4,018		3,966
Long-term operating lease liabilities	428		413
Other liabilities	782		711
Commitments and contingencies
Redeemable noncontrolling interest	80		76
Stockholders’ equity:
Quest Diagnostics stockholders’ equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2020 and December 31, 2019; 217 shares issued as of both September 30, 2020 and December 31, 2019	2		2
Additional paid-in capital	2,801		2,722
Retained earnings	8,800		8,174
Accumulated other comprehensive loss	(42)		(39)
Treasury stock, at cost; 82 and 84 shares as of September 30, 2020 and December 31, 2019, respectively	(5,161)		(5,218)
Total Quest Diagnostics stockholders’ equity	6,400		5,641
Noncontrolling interests	46		46
Total stockholders’ equity	6,446		5,687
Total liabilities and stockholders’ equity	$	14,143	$	12,843

The accompanying notes are an integral part of these statements.

4

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(in millions)

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	890	$	641
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	263		247
Provision for credit losses	18		9
Deferred income tax provision	12		15
Stock-based compensation expense	63		44
Other, net	(60)		(44)
Changes in operating assets and liabilities:
Accounts receivable	(355)		(113)
Accounts payable and accrued expenses	514		80
Income taxes payable	95		9
Termination of interest rate swap agreements	40		—
Other assets and liabilities, net	(16)		7
Net cash provided by operating activities	1,464		895
Cash flows from investing activities:
Business acquisitions, net of cash acquired	(329)		(56)
Capital expenditures	(256)		(228)
Increase in investments and other assets	(19)		(27)
Net cash used in investing activities	(604)		(311)
Cash flows from financing activities:
Proceeds from borrowings	749		1,484
Repayments of debt	(1,002)		(1,448)
Purchases of treasury stock	(75)		(153)
Exercise of stock options	144		98
Employee payroll tax withholdings on stock issued under stock-based compensation plans	(13)		(16)
Dividends paid	(222)		(215)
Distributions to noncontrolling interest partners	(34)		(39)
Other financing activities, net	6		4
Net cash used in financing activities	(447)		(285)
Net change in cash and cash equivalents and restricted cash	413		299
Cash and cash equivalents and restricted cash, beginning of period	1,192		135
Cash and cash equivalents and restricted cash, end of period	$	1,605	$	434

The accompanying notes are an integral part of these statements.

5

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(in millions)

For the Three Months Ended September 30, 2020		Quest Diagnostics Stockholders’ Equity
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, June 30, 2020	134	$	2	$	2,764	$	8,307	$	(55)	$	(5,187)	$	50	$	5,881	$	77
Net income						568						18		586		5
Other comprehensive income, net of taxes								13						13
Dividends declared						(75)								(75)
Distributions to noncontrolling interest partners												(22)		(22)		(2)
Issuance of common stock under benefit plans	1			1						3				4
Stock-based compensation expense				32										32
Exercise of stock options				4						23				27
Balance, September 30, 2020	135	$	2	$	2,801	$	8,800	$	(42)	$	(5,161)	$	46	$	6,446	$	80
For the Nine Months Ended September 30, 2020		Quest Diagnostics Stockholders’ Equity
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2019	133	$	2	$	2,722	$	8,174	$	(39)	$	(5,218)	$	46	$	5,687	$	76
Net income						852						31		883		7
Other comprehensive loss, net of taxes								(3)						(3)
Dividends declared						(226)								(226)
Distributions to noncontrolling interest partners												(31)		(31)		(3)
Issuance of common stock under benefit plans	1			7						10				17
Stock-based compensation expense				63										63
Exercise of stock options	2			22						122				144
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(13)										(13)
Purchases of treasury stock	(1)									(75)				(75)
Balance, September 30, 2020	135	$	2	$	2,801	$	8,800	$	(42)	$	(5,161)	$	46	$	6,446	$	80

The accompanying notes are an integral part of these statements.

6

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(unaudited)

(in millions)

For the Three Months Ended September 30, 2019		Quest Diagnostics Stockholders’ Equity
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, June 30, 2019	135	$	2	$	2,686	$	7,849	$	(58)	$	(5,020)	$	50	$	5,509	$	76
Net income						215						10		225		1
Other comprehensive income, net of taxes								3						3
Dividends declared						(72)								(72)
Distributions to noncontrolling interest partners												(11)		(11)		(1)
Issuance of common stock under benefit plans				3						3				6
Stock-based compensation expense				12										12
Exercise of stock options	1			4						28				32
Purchases of treasury stock	(1)									(50)				(50)
Balance, September 30, 2019	135	$	2	$	2,705	$	7,992	$	(55)	$	(5,039)	$	49	$	5,654	$	76
For the Nine Months Ended September 30, 2019		Quest Diagnostics Stockholders’ Equity
	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2018	135	$	2	$	2,667	$	7,602	$	(59)	$	(4,996)	$	51	$	5,267	$	77
Net income						605						32		637		4
Other comprehensive income, net of taxes								4						4
Dividends declared						(215)								(215)
Distributions to noncontrolling interest partners												(34)		(34)		(5)
Issuance of common stock under benefit plans				7						12				19
Stock-based compensation expense				43						1				44
Exercise of stock options	2			4						94				98
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(16)										(16)
Purchases of treasury stock	(2)									(150)				(150)
Balance, September 30, 2019	135	$	2	$	2,705	$	7,992	$	(55)	$	(5,039)	$	49	$	5,654	$	76

The accompanying notes are an integral part of these statements.

7

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in millions, unless otherwise indicated)

1.    DESCRIPTION OF BUSINESS

    Background

    Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") empower people to take action to improve health outcomes.  The Company uses its extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management.  The Company's diagnostic information services business ("DIS") provides information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The Company provides services to a broad range of customers including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers and accountable care organizations ("ACOs"). The Company offers the broadest access in the United States to diagnostic information services through its nationwide network of laboratories, patient service centers and phlebotomists in physician offices and the Company's connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. The Company is the world's leading provider of diagnostic information services. The Company provides interpretive consultation with one of the largest medical and scientific staffs in the industry and hundreds of M.D.s and Ph.D.s, many of whom are recognized leaders in their fields. The Company's Diagnostic Solutions businesses ("DS") are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Basis of Presentation

    The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2019, but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”).

    The accounting policies of the Company are the same as those set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K except for the impact of the adoption of new accounting standards discussed under New Accounting Pronouncements.

    A novel strain of coronavirus (“COVID-19”) continues to spread and severely impact the economy of the United States and other countries around the world. Since March 2020, federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home policies, all of which have had, and the Company believes will continue to have, an impact on the Company’s consolidated results of operations, financial position, and cash flows. Additionally, beginning during the second quarter of 2020, the Company experienced growing demand for COVID-19 molecular and antibody testing services and has expanded its capacity in order to satisfy such demand. As a result, operating results for the three and nine months ended September 30, 2020 may not be indicative of the results that may be expected for the full year.

    Use of Estimates

    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    Earnings Per Share

    The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and its Amended and Restated Non-Employee Director Long-Term Incentive Plan. Earnings allocable to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.

    New Accounting Pronouncements

    Adoption of New Accounting Standards    

    On January 1, 2020, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") which aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard, which the Company elected to do on a prospective basis, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

    On January 1, 2020, the Company adopted a new accounting standard issued by the FASB that changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The adoption of this new standard, which was done using a modified retrospective transition approach, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. See Note 15 for further details on the Company's allowance for credit losses policy.

    New Accounting Standards to be Adopted

    In March 2020, the FASB issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The pronouncement is effective immediately and can be applied through December 31, 2022. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

9

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

3.    EARNINGS PER SHARE

    The computation of basic and diluted earnings per common share was as follows (in millions, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$	568	$	215	$	852	$	585
Income from discontinued operations, net of taxes	—		—		—		20
Net income attributable to Quest Diagnostics’ common stockholders	$	568	$	215	$	852	$	605
Income from continuing operations	$	568	$	215	$	852	$	585
Less: Earnings allocated to participating securities	2		1		3		2
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$	566	$	214	$	849	$	583
Weighted average common shares outstanding – basic	135		135		134		135
Effect of dilutive securities:
Stock options and performance share units	2		2		2		1
Weighted average common shares outstanding – diluted	137		137		136		136
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations	$	4.20	$	1.59	$	6.33	$	4.33
Income from discontinued operations	—		—		—		0.15
Net income	$	4.20	$	1.59	$	6.33	$	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders – diluted:
Income from continuing operations	$	4.14	$	1.56	$	6.25	$	4.27
Income from discontinued operations	—		—		—		0.15
Net income	$	4.14	$	1.56	$	6.25	$	4.42

    The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Stock options	1	2	1	3

    The sum of basic and diluted earnings per share attributable to Quest Diagnostics' common stockholders for the first three quarters of 2020 did not equal the totals for the nine months ended September 30, 2020 due to quarterly fluctuations in the Company's earnings and weighted average common shares outstanding throughout the period as a result of the impact of COVID-19 (see Note 2 for further details) and the temporary cessation of repurchases under the Company's share repurchase program (see Note 10 for further details).

10

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

4.    RESTRUCTURING ACTIVITIES

    Invigorate Program

    The Company is committed to a program called Invigorate which is designed to reduce its cost structure and improve performance. Invigorate consists of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; service excellence; lab excellence; and revenue services excellence. In addition to these programs, the Company identified key themes to change how it operates including reducing denials and patient concessions; further digitizing the business; standardization and automation; and optimization initiatives in the areas of lab network and patient service center network. The Invigorate program is intended to partially offset reimbursement pressures and labor and benefit cost increases; free up additional resources to invest in science, innovation and other growth initiatives; and enable the Company to improve service quality and operating profitability.

    Restructuring Charges

    The following table provides a summary of the Company's pre-tax restructuring charges for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee separation costs	$	6	$	—	$	13	$	(3)

    The restructuring charges incurred for the three and nine months ended September 30, 2020 were primarily associated with various workforce reduction initiatives as the Company continued to simplify and restructure its organization. The $6 million of restructuring charges incurred during the three months ended September 30, 2020 were recorded in cost of services. Of the total restructuring charges incurred during the nine months ended September 30, 2020, $9 million and $4 million were recorded in cost of services and selling, general and administrative expenses, respectively.

    The restructuring activity recorded in the nine months ended September 30, 2019 represents a release of the liability relating to restructuring charges recorded in prior periods, which were determined to no longer be required. Of the total restructuring release recorded in the nine months ended September 30, 2019, $(1) million and $(2) million were recorded in cost of services and selling, general and administrative expenses, respectively.

    Charges for all periods presented were primarily recorded in the Company's DIS business.    

    The restructuring liability as of both September 30, 2020 and December 31, 2019, which is included in accounts payable and accrued expenses, was $9 million.

11

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

5.     BUSINESS ACQUISITIONS

    On January 21, 2020, the Company completed its acquisition of Blueprint Genetics Oy ("Blueprint Genetics"), in an all cash transaction for $108 million, net of $3 million cash acquired. Blueprint Genetics is a leading specialty genetic testing company with deep expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics. Through the acquisition, the Company acquired all of Blueprint Genetics' operations. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed primarily consist of $77 million of goodwill (none of which is tax-deductible), $43 million of intangible assets, an $11 million deferred tax liability, and $2 million of property, plant and equipment and working capital. The intangible assets primarily consist of technology and customer-related assets which are being amortized over a useful life of 10 years and 15 years, respectively.

    On April 6, 2020, the Company completed its acquisition of select assets which constitute substantially all of the operations of Memorial Hermann Diagnostic Laboratories, the outreach laboratory division of Memorial Hermann Health System ("Memorial Hermann"), in an all cash transaction for $120 million. Memorial Hermann is a not-for-profit health system in Southeast Texas. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired primarily consist of $27 million of customer-related intangible assets and $93 million of tax-deductible goodwill. The intangible assets are being amortized over a useful life of 15 years.

    On August 1, 2020, the Company completed its acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") from its joint venture partners in an all cash transaction for $93 million, net of $18 million cash acquired. The final consideration is subject to post closing adjustments related to working capital. MACL is the largest independent clinical laboratory provider in Indiana. Prior to the acquisition, the Company accounted for its 44% interest in MACL as an equity method investment, which was remeasured to its fair value of $87 million on the acquisition date, resulting in a gain of $70 million that was recognized in other income, net in the consolidated statements of operations. The fair value of the previously held equity interest was determined using a discounted cash flow analysis that takes into account, among other items, MACL's expected future cash flows, long-term growth rate (1.5%), and a discount rate commensurate with economic risk (7.5%). Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed consist of $84 million of goodwill (of which $47 million is tax-deductible), $74 million of intangible assets, $11 million of working capital and $11 million of property, plant and equipment. The intangible assets consist of customer-related assets which are being amortized over a useful life of 15 years. As a result of the acquisition, MACL became a wholly owned subsidiary of the Company.

    The acquisitions were accounted for under the acquisition method of accounting. As such, the assets acquired and liabilities assumed were recorded based on their estimated fair values as of the closing date. Supplemental pro forma combined financial information has not been presented as the impact of the acquisitions is not material to the Company's consolidated financial statements. The goodwill recorded primarily includes the expected synergies resulting from combining the operations of the acquired entities with those of the Company and the value associated with an assembled workforce and other intangible assets that do not qualify for separate recognition. All of the goodwill acquired in connection with these acquisitions has been allocated to the Company's DIS business. For further details regarding business segment information, see Note 13.

    For details regarding the Company's 2019 acquisitions, see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.    

12

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

6.     FAIR VALUE MEASUREMENTS

    Assets and Liabilities Measured at Fair Value on a Recurring Basis

    The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:

			Basis of Fair Value Measurements
			Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2020	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	60	$	60	$	—	$	—
Cash surrender value of life insurance policies	45		—		45		—
Available-for-sale debt securities	12		—		—		12
Total	$	117	$	60	$	45	$	12
Liabilities:
Deferred compensation liabilities	$	114	$	—	$	114	$	—
Redeemable noncontrolling interest	$	80	$	—	$	—	$	80

			Basis of Fair Value Measurements
December 31, 2019	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	59	$	59	$	—	$	—
Cash surrender value of life insurance policies	43		—		43		—
Available-for-sale debt securities	12		—		—		12
Total	$	114	$	59	$	43	$	12
Liabilities:
Deferred compensation liabilities	$	110	$	—	$	110	$	—
Fixed-to-variable interest rate swaps	28		—		28		—
Contingent consideration	7		—		—		7
Total	$	145	$	—	$	138	$	7
Redeemable noncontrolling interest	$	76	$	—	$	—	$	76

    A detailed description regarding the Company's fair value measurements is contained in Note 7 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.    

    The Company offers certain employees the opportunity to participate in a non-qualified supplemental deferred compensation plan. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. The trading securities are classified within Level 1 of the fair value hierarchy because the changes in the fair value of these securities are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held, exclusive of any transaction costs. A

13

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the trading securities.

    The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments. Deferrals under the plan currently may only be made by participants who made deferrals under the plan in 2017.

    The Company's available-for-sale debt securities are measured at fair value using discounted cash flows. These fair value measurements are classified within Level 3 of the fair value hierarchy as the fair value is based on significant inputs that are not observable. Significant inputs include cash flows projections and a discount rate.

    The fair value measurements of the Company's fixed-to-variable interest rate swaps, which were terminated during April 2020 (see Note 9), were classified within Level 2 of the fair value hierarchy and were based on model-derived valuations as of a given date in which all significant inputs are observable in active markets, including certain financial information and certain assumptions regarding past, present and future market conditions.

    In connection with previous business acquisitions, the Company has contingent consideration liabilities that are to be paid based on the achievement of certain testing volume or revenue benchmarks. As of September 30, 2020, the fair value of these contingent consideration liabilities was immaterial. These contingent consideration liabilities are measured at fair value using an option-pricing method and are classified within Level 3 of the fair value hierarchy as the fair value is determined based on significant inputs that are not observable. Significant inputs include management’s estimate of volume or revenue and other market inputs including comparable company revenue volatility and a discount rate. A summary of the significant inputs as of September 30, 2020 is as follows:

Business Acquisition	Benchmark	Comparable Company Revenue Volatility	Discount rate	Maximum Contingent Consideration Payment
ReproSource, Inc.	Revenue	8.5%	6.5%	$	10

    For further details regarding the Company's acquisitions, see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K and Note 5 to the interim unaudited consolidated financial statements.

    The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3 of the fair value hierarchy):

	Contingent Consideration
Balance, December 31, 2019	$	7
Settlements	(6)
Total (gains)/losses included in earnings - realized/unrealized	(1)
Balance, September 30, 2020	$	—

    The $1 million net gain included in earnings associated with the change in the fair value of contingent consideration for the nine months ended September 30, 2020 is reported in other operating expense (income), net.

14

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of September 30, 2020, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long term growth rates, and a discount rate commensurate with economic risk.

    The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of September 30, 2020 and December 31, 2019, the fair value of the Company’s debt was estimated at $5.2 billion and $5.1 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.

7.    GOODWILL AND INTANGIBLE ASSETS

    The changes in goodwill for the nine months ended September 30, 2020 and for the year ended December 31, 2019 were as follows:

	September 30, 2020		December 31, 2019
Balance, beginning of period	$	6,619	$	6,563
Goodwill acquired during the period	258		43
Adjustments to goodwill	3		13
Balance, end of period	$	6,880	$	6,619

    Principally all of the Company’s goodwill as of September 30, 2020 and December 31, 2019 was associated with its DIS business.

    For the nine months ended September 30, 2020, goodwill acquired during the period was primarily associated with the acquisitions of Blueprint Genetics, Memorial Hermann and MACL (see Note 5) and adjustments to goodwill primarily related to foreign currency translation. For the year ended December 31, 2019, goodwill acquired was principally associated with the acquisitions of certain assets of the clinical laboratory services business of Boyce & Bynum Pathology Laboratories, P.C. and adjustments to goodwill primarily related to the finalization of the purchase price allocation for the acquisition of the U.S. laboratory services business of Oxford Immunotec, Inc. (see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K).     

15

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    Intangible assets at September 30, 2020 and December 31, 2019 consisted of the following:

	Weighted Average Amortization Period (in years)	September 30, 2020						December 31, 2019
		Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizing intangible assets:
Customer-related	17	$	1,479	$	(617)	$	862	$	1,367	$	(556)	$	811
Non-compete agreements	9	3		(2)		1		3		(2)		1
Technology	15	140		(63)		77		104		(56)		48
Other	9	110		(94)		16		110		(85)		25
Total	17	1,732		(776)		956		1,584		(699)		885
Intangible assets not subject to amortization:
Trade names		235		—		235		235		—		235
Other		1		—		1		1		—		1
Total intangible assets		$	1,968	$	(776)	$	1,192	$	1,820	$	(699)	$	1,121

    The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2020 is as follows:

Year Ending December 31,
Remainder of 2020	$	27
2021	101
2022	98
2023	96
2024	93
2025	91
Thereafter	450
Total	$	956

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

8.    DEBT

    Long-term debt (including finance lease obligations) as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
4.75% Senior Notes due January 2020	$	—	$	500
2.50% Senior Notes due March 2020	—		300
4.70% Senior Notes due April 2021	551		554
4.25% Senior Notes due April 2024	317		308
3.50% Senior Notes due March 2025	623		593
3.45% Senior Notes due June 2026	513		490
4.20% Senior Notes due June 2029	499		499
2.95% Senior Notes due June 2030	798		798
2.80% Senior Notes due June 2031	549		—
6.95% Senior Notes due July 2037	175		175
5.75% Senior Notes due January 2040	245		245
4.70% Senior Notes due March 2045	300		300
Other	32		34
Debt issuance costs	(29)		(26)
Total long-term debt	4,573		4,770
Less: Current portion of long-term debt	555		804
Total long-term debt, net of current portion	$	4,018	$	3,966

    Retirement of Debt

    During January 2020, the Company redeemed in full the outstanding indebtedness under the Company's senior notes due January 2020 and senior notes due March 2020 using proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand. For the nine months ended September 30, 2020, the Company recorded a loss on retirement of debt, principally comprised of premiums paid, of $1 million in other income, net.

    May 2020 Senior Notes Offering

    During May 2020, the Company completed a senior notes offering, consisting of $550 million aggregate principal amount of 2.80% senior notes due June 2031 (the "2031 Senior Notes"), which were issued at an original issue discount of $1 million. The 2031 Senior Notes are unsecured obligations of the Company that rank equally with the Company's other senior unsecured obligations. The 2031 Senior Notes do not have a sinking fund requirement. The Company incurred $5 million of debt issuance costs associated with the 2031 Senior Notes, which are included as a reduction to the carrying amount of long-term debt and which are being amortized over the term of the related debt.

    During October 2020, the Company issued a redemption notice to the holders of the Company's $550 million aggregate principal amount of 4.70% senior notes due April 2021. The Company intends to use the net proceeds from the 2031 Senior Notes, along with cash on hand, to satisfy the redemption. See Note 18 for further details.

    Credit Facilities

    As of September 30, 2020, the Company had cash and cash equivalents on hand of $1,605 million and had $1.3 billion of borrowing capacity available under its existing credit facilities, including $529 million available under its secured receivables credit facility and $750 million available under its senior unsecured revolving credit facility. There were no outstanding borrowings under the Company's existing credit facilities as of September 30, 2020. The secured receivables credit facility was amended in October 2020 in order to extend the maturity dates for each underlying commitment by one year, while maintaining

17

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

the borrowing capacity at $600 million. See Note 18 for further details. The senior unsecured revolving credit facility matures in March 2023. For further details regarding the credit facilities, see Note 13 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.

    The secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. The Company's senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. On April 30, 2020, the Company entered into an amendment to the senior unsecured revolving credit facility in order to provide for increased flexibility. Pursuant to the amendment, the leverage ratio covenant (as defined in the senior unsecured revolving credit facility) was increased as follows:

As of:	Applicable Covenant:
September 30, 2020	no more than 5.5 times EBITDA
December 31, 2020	no more than 6.5 times EBITDA
March 31, 2021	no more than 6.25 times EBITDA
June 30, 2021	no more than 4.5 times EBITDA

    Thereafter, the leverage ratio covenant reverts to no more than 3.5 times EBITDA. During the period that the increased covenant applies, which period may be terminated early by the Company provided that it is in compliance with the historical 3.5 times EBITDA leverage ratio, the amended credit agreement contains certain additional limitations and restrictions including, but not limited to, repurchases of the Company's common stock, the amount of funds that can be used on business acquisitions, the incurrence of secured indebtedness and the payment of dividends. As of September 30, 2020, the Company was in compliance with all such applicable financial covenants. Interest on the amended senior unsecured revolving credit facility is subject to a pricing schedule that can fluctuate based on changes in the Company's credit ratings and its leverage ratio.

    During the nine months ended September 30, 2020, the Company borrowed $100 million under its secured receivables credit facility and $100 million under its senior unsecured revolving credit facility, both of which were repaid prior to September 30, 2020.

    Maturities of Long-Term Debt    

    As of September 30, 2020, long-term debt matures as follows:

Year Ending December 31,
Remainder of 2020	$	1
2021	553
2022	3
2023	2
2024	302
Thereafter	3,696
Total maturities of long-term debt	4,557
Unamortized discount	(11)
Debt issuance costs	(29)
Fair value basis adjustments attributable to hedged debt	56
Total long-term debt	4,573
Current portion of long-term debt	555
Total long-term debt, net of current portion	$	4,018

18

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

9.    FINANCIAL INSTRUMENTS

    The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates and, from time to time, foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, treasury lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral.

    Interest Rate Risk

    The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company enters into interest rate swaps.

    Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense.

    Interest Rate Derivatives – Cash Flow Hedges

    From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.

    During March 2020, the Company entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $25 million. Additionally, during May 2020, the Company entered into interest rate lock agreements with several financial institutions for a total notional amount of $275 million. The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of the Company's interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten-year period related to an anticipated issuance of debt and were accounted for as cash flow hedges. In connection with the issuance of the 2031 Senior Notes (see Note 8), these agreements were settled and the Company received net proceeds of $1 million. The net gain is deferred in stockholders' equity, net of taxes, as a component of accumulated other comprehensive loss, and is being amortized as an adjustment to interest expense, net over a ten-year period.

    The total net loss, net of taxes, recognized in accumulated other comprehensive loss, related to the Company's cash flow hedges was $1 million and $4 million as of September 30, 2020 and December 31, 2019, respectively. The net amount of deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense, net within the next twelve months is $1 million.

    Interest Rate Derivatives – Fair Value Hedges

    As of December 31, 2019, the Company had various fixed-to-variable interest rate swap agreements outstanding with an aggregate notional amount of $1.2 billion, which were entered into in order to convert a portion of the Company's long-term debt into variable interest rate debt. In April 2020, the Company terminated these existing fixed-to-variable interest rate swap agreements and received proceeds of $40 million. Such amount was reflected as a basis adjustment to the hedged debt instruments and is being amortized as a reduction of interest expense, net over their remaining terms.

    As of September 30, 2020 and December 31, 2019, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:

19

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

	Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)		Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification	September 30, 2020		September 30, 2020		December 31, 2019		December 31, 2019
Long-term debt	$	—	$	56	$	1,186	$	(3)

(a) As of September 30, 2020, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships. As of December 31, 2019, the balance includes $25 million of remaining unamortized hedging adjustments on discontinued relationships.

    The following table presents the effect of fair value hedge accounting on the Company's consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	Other income, net		Other income, net		Other income, net		Other income, net
Total for line item in which the effects of fair value hedges are recorded	$	77	$	1	$	74	$	13
Gain (loss) on fair value hedging relationships:
Hedged items (Long-term debt)	$	—	$	(20)	$	(68)	$	(76)
Derivatives designated as hedging instruments	$	—	$	20	$	68	$	76

    A detailed description regarding the Company's use of derivative financial instruments is contained in Note 15 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.        

10.    STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

    Stockholders' Equity    

Changes in Accumulated Other Comprehensive Loss by Component

Comprehensive income (loss) includes:

•Foreign currency translation adjustments;

•Net deferred gain on cash flow hedges, which represents deferred gains/losses, net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 9); and

•Net change on available-for-sale debt securities, which represents unrealized holding gains, net of taxes on available-for-sale debt securities.

    For the three and nine months ended September 30, 2020 and 2019, the tax effects related to the deferred gains/losses on cash flow hedges and net change on available-for-sale debt securities were not material. Foreign currency translation adjustments related to indefinite investments in non-U.S. subsidiaries are not adjusted for income taxes.

Dividend Program

    During each of the first three quarters of 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.56 per common share. During each of the four quarters of 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.53 per common share.

20

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

Share Repurchase Program

    As of September 30, 2020, $1.2 billion remained available under the Company’s share repurchase authorizations; however, in April 2020, the Company temporarily suspended additional share repurchases under the existing authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

    For the nine months ended September 30, 2020, the Company repurchased 0.7 million shares of its common stock for $75 million.

    For the nine months ended September 30, 2019, the Company repurchased 1.6 million shares of its common stock for $150 million.

Shares Reissued from Treasury Stock

    For the nine months ended September 30, 2020 and 2019, the Company reissued 2.1 million shares and 1.8 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan and stock option plans. For details regarding the Company's stock ownership and compensation plans, see Note 17 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.    

    Redeemable Noncontrolling Interest

    In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. As of September 30, 2020 and December 31, 2019, the redeemable noncontrolling interest was presented at its fair value. For further information regarding the fair value of the redeemable noncontrolling interest, see Note 6.

11.    SUPPLEMENTAL CASH FLOW AND OTHER DATA

    Supplemental cash flow and other data for the three and nine months ended September 30, 2020 and 2019 was as follows:

21

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Depreciation expense	$	62	$	59	$	186	$	175
Amortization expense	27		23		77		72
Depreciation and amortization expense	$	89	$	82	$	263	$	247
Interest expense	$	(42)	$	(45)	$	(126)	$	(136)
Interest income	—		1		2		3
Interest expense, net	$	(42)	$	(44)	$	(124)	$	(133)
Interest paid	$	33	$	58	$	136	$	149
Income taxes paid	$	148	$	65	$	168	$	148
Accounts payable associated with capital expenditures	$	55	$	24	$	55	$	24
Dividends payable	$	76	$	72	$	76	$	72
Businesses acquired:
Fair value of assets acquired	$	126	$	—	$	377	$	61
Fair value of liabilities assumed	(9)		—		(29)		—
Fair value of net assets acquired	117		—		348		61
Merger consideration receivable/payable	2		—		2		(5)
Cash paid for business acquisitions	119		—		350		56
Less: Cash acquired	18		—		21		—
Business acquisitions, net of cash acquired	$	101	$	—	$	329	$	56
Leases:
Leased assets obtained in exchange for new operating lease liabilities	$	40	$	38	$	119	$	116
Leased assets obtained in exchange for new finance lease liabilities	$	—	$	1	$	—	$	1

    In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. The CARES Act also includes a number of benefits that are applicable to the Company and other healthcare providers including, but not limited to, the appropriation of $100 billion to health care providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic.

    In April 2020 and August 2020, the Company received approximately $65 million and $73 million, respectively, of funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act. In October 2020, the Company announced that it plans to return the entire $138 million of funds received.

22

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    The Company accounts for the receipt of the funds under a gain contingency model. Accordingly, such amounts are recognized when the funds are received and the Company has determined that it has satisfied the associated terms and conditions. During the three months ended June 30, 2020, based on the terms and conditions that were in effect at such time, the Company concluded that it had satisfied such terms and conditions for the $65 million of funds that were received in April 2020 and, therefore, the Company recognized such amount in other operating expense (income), net during the second quarter. During the three months ended September 30, 2020, the Company reversed the $65 million of funds that had previously been recognized in other operating expense (income), net. As of September 30, 2020, no amounts are recorded in the Company's year-to-date consolidated statement of operations and the entire $138 million of funds that the Company intends to return are recorded in accounts payable and accrued expenses on the Company’s consolidated balance sheet. For the nine months ended September 30, 2020, net cash provided by operating activities included the $138 million that the Company received from the funds that were distributed to healthcare providers under the CARES Act.

12.     COMMITMENTS AND CONTINGENCIES

    Letters of Credit

    The Company can issue letters of credit totaling $100 million under its secured receivables credit facility and $150 million under its senior unsecured revolving credit facility. For further discussion regarding the Company's secured receivables credit facility and senior unsecured revolving credit facility, see Note 13 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K and Note 8 to the interim unaudited consolidated financial statements.    

    In support of its risk management program, to ensure the Company’s performance or payment to third parties, $71 million in letters of credit under the secured receivables credit facility were outstanding as of September 30, 2020. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.

    Contingent Lease Obligations

    The Company remains subject to contingent obligations under certain real estate leases, including leases that were entered into by certain predecessor companies of a subsidiary prior to the Company's acquisition of the subsidiary. No liability has been recorded for any of these potential contingent obligations. For further details, see Note 18 to the audited consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K.

    Certain Legal Matters

    The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.

401(k) Plan Lawsuit

    In June 2020, a putative class action lawsuit, House Johnson v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In July 2020, a putative class action lawsuit, Rice, et. al v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey. The plaintiffs in the Rice case named the same defendants as those named in the House Johnson case and alleged substantially similar claims to those made in the House Johnson matter. In October 2020, the court consolidated the two lawsuits and plaintiffs filed a consolidated amended complaint. The Company plans to vigorously defend this matter.

23

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

AMCA Data Security Incident.

    On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws.

    Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint.

    In addition, certain federal and state governmental authorities are investigating, or otherwise seeking information and/or documents from the Company related to the AMCA Data Security Incident and related matters, including the Office for Civil Rights of the U.S. Department of Health and Human Services, Attorneys General offices from numerous states and the District of Columbia, and certain U.S. senators.

    Other Legal Matters

    In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.

    The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

    The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing practices based on the qui tam provisions of the Civil False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistle blowers" as to which the Company cannot determine the extent of any potential liability.

    Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.

    These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of September 30, 2020, the Company does not believe that material losses related to legal matters are probable.

24

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    Reserves for legal matters totaled $1 million as of both September 30, 2020 and December 31, 2019, respectively.

    Reserves for General and Professional Liability Claims

    As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims. Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled $134 million and $132 million as of September 30, 2020 and December 31, 2019, respectively. Management believes that established reserves and present insurance coverage are sufficient to cover currently estimated exposures.

13.    BUSINESS SEGMENT INFORMATION

    The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), assesses performance and allocates resources across the organization. The DIS business provides diagnostic information services to a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers and ACOs. The Company is the world's leading provider of diagnostic information services, which includes providing information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The DIS business accounted for greater than 95% of net revenues in 2020 and 2019.

    All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

    As of September 30, 2020, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States.

    The following table is a summary of segment information for the three and nine months ended September 30, 2020 and 2019. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.

25

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues:
DIS business	$	2,709	$	1,877	$	6,217	$	5,561
All other operating segments	77		79		218		239
Total net revenues	$	2,786	$	1,956	$	6,435	$	5,800
Operating earnings (loss):
DIS business	$	840	$	345	$	1,325	$	963
All other operating segments	16		10		29		31
General corporate activities	(138)		(42)		(178)		(126)
Total operating income	718		313		1,176		868
Non-operating income (expense), net	35		(43)		(50)		(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753		270		1,126		748
Income tax expense	(177)		(62)		(269)		(175)
Equity in earnings of equity method investees, net of taxes	15		18		33		48
Income from continuing operations	591		226		890		621
Income from discontinued operations, net of taxes	—		—		—		20
Net income	591		226		890		641
Less: Net income attributable to noncontrolling interests	23		11		38		36
Net income attributable to Quest Diagnostics	$	568	$	215	$	852	$	605

14.    RELATED PARTIES

    The Company's equity method investees primarily consist of its clinical trials central laboratory services joint venture and its diagnostic information services joint ventures, which are accounted for under the equity method of accounting. During the three months ended September 30, 2020 and 2019, the Company recognized net revenues of $10 million and $8 million, respectively, associated with diagnostic information services provided to its equity method investees. During the nine months ended September 30, 2020 and 2019, the Company recognized net revenues of $25 million and $26 million, respectively, associated with diagnostic information services provided to its equity method investees. As of both September 30, 2020 and December 31, 2019, there was $4 million of accounts receivable from equity method investees related to such services. During both the three months ended September 30, 2020 and 2019, the Company recognized net revenues of $1 million associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. During the nine months ended September 30, 2020 and 2019, the Company recognized net revenues of $2 million and $6 million, respectively, associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. As of December 31, 2019, there was $4 million of receivables from the noncontrolling interest partner included in accounts receivable and other assets related to such services.

    During both the three months ended September 30, 2020 and 2019, the Company recognized income of $4 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. During both the nine months ended September 30, 2020 and 2019, the Company recognized income of $12 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. As of September 30, 2020 and December 31, 2019, there was $2 million and $1 million, respectively, of other receivables from equity method investees included in prepaid expenses and other current assets related to these service agreements and other transition related items. In addition, accounts payable and accrued expenses as of September 30, 2020 and December 31, 2019 included $1 million and $2 million, respectively, due to equity method investees.

26

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    During the nine months ended September 30, 2020 and 2019, the Company received dividends from its equity method investees of $34 million and $27 million, respectively.

15.    REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES

    DIS

    Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three and nine months ended September 30, 2020 and 2019 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process, when results are reported, or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, using the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials and price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.

    DS

    The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered.

    The approximate percentage of net revenue by type of customer was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Healthcare insurers:
Fee-for-service	33	%	32	%	33	%	33	%
Capitated	2		3		3		3
Total healthcare insurers	35		35		36		36
Government payers	10		15		12		15
Client payers	40		33		37		32
Patients	12		13		12		13
Total DIS	97		96		97		96
DS	3		4		3		4
Net revenues	100	%	100	%	100	%	100	%

    The approximate percentage of net accounts receivable by type of customer was as follows:

	September 30, 2020		December 31, 2019
Healthcare Insurers	30	%	22	%
Government Payers	6		11
Client Payers	48		42
Patients (including coinsurance and deductible responsibilities)	12		20
Total DIS	96		95
DS	4		5
Net accounts receivable	100	%	100	%

27

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

    Allowance for Credit Losses Policy

    When estimating its allowance for credit losses, the Company pools its trade receivables based on the following customer types: healthcare insurers, government payers, client payers and patients. 

    For the healthcare insurers and government payers, collection of the Company’s net revenues is normally a function of providing the complete and correct billing information within the various filing deadlines, and provided that the Company has billed the payers accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. 

    Client payers primarily include physicians, hospitals, IDNs, ACOs, employers, other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules.  Credit risk and ability to pay are more of a consideration for these payers. 

    With respect to patients, implicit price concessions, which represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, are recognized as a reduction of revenue.  Estimates of implicit price concessions consider historical collection experience (including the period the receivables have been outstanding) and other factors including current market conditions.

    The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period that the receivables have been outstanding.  To the extent that any individual payers are identified that have deteriorated in credit quality, the Company removes the customers from their respective pools and establishes allowances based on the individual risk characteristics of such customers.

    Although the Company believes that its estimates for contractual allowances and patient price concessions as well as its allowance for credit losses are appropriate, it is possible that the Company will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic.

28

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

16.    TAXES ON INCOME

    For the three months ended September 30, 2020 and 2019, the effective income tax rate was 23.7% and 22.9%, respectively. The effective income tax rate for the three months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $3 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the three months ended September 30, 2019 benefited from a $6 million income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards; and $3 million of excess tax benefits associated with stock-based compensation arrangements.

    For the nine months ended September 30, 2020 and 2019, the effective income tax rate was 23.9% and 23.4%, respectively. The effective income tax rate for the nine months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $15 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the nine months ended September 30, 2019 benefited from $11 million of excess tax benefits associated with stock-based compensation arrangements; and a $10 million income tax benefit due to the release of valuation allowances associated with net operating loss carryforwards.

    The effective income tax rate associated with the $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value was 11.8% due to a permanent difference in the financial reporting and tax basis of goodwill.

    For the three and nine months ended September 30, 2020, the Company utilized the most likely estimate of its annual income before taxes to determine the annual effective income tax rate for 2020. As a result of uncertainty associated with the impact of the COVID-19 pandemic, it is possible that the Company will experience variability in the annual projections and, as a result, the annual effective income tax rate.

17.    DISCONTINUED OPERATIONS

    During the third quarter of 2006, the Company completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was reported as a discontinued operation for the nine months ended September 30, 2019. Discontinued operations, net of taxes, for the nine months ended September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID. In addition, net cash provided by operating activities in the consolidated statement of cash flows for the nine months ended September 30, 2019 included a $28 million refund from the taxing authorities related to discontinued operations.

18.    SUBSEQUENT EVENTS

    During October 2020, the Company amended its $600 million secured receivables credit facility in order to extend the maturity dates for each underlying commitment by one year while maintaining the borrowing capacity under the facility at $600 million. Under the secured receivables credit facility, the Company can borrow against a $250 million loan commitment maturing October 2021 and a $250 million loan commitment maturing October 2022. Additionally, the Company can issue up to $100 million of letters of credit through October 2022. Borrowings under the facility are collateralized by certain domestic receivables. Interest on borrowings under the facility is based on either commercial paper rates for highly-rated issuers or LIBOR, plus a spread of 0.825% to 0.95%.

    In October 2020, the Company issued a redemption notice to the holders of the Company's $550 million aggregate principal amount of 4.70% senior notes due April 2021, to redeem such notes in November 2020. Upon redemption, the Company will recognize a loss on extinguishment of debt based on the difference between the reacquisition price of the debt and the net carrying amount. The Company will pay a redemption premium in accordance with the requirements of such notes using a treasury rate calculated on the third business day preceding the redemption date.

29

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Company

    Diagnostic Information Services

    Quest Diagnostics empowers people to take action to improve health outcomes. We use our extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. Our diagnostic information services business ("DIS") provides information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We provide services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers and accountable care organizations ("ACOs"). We offer the broadest access in the United States to diagnostic information services through our nationwide network of laboratories, patient service centers and phlebotomists in physician offices and our connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. We are the world's leading provider of diagnostic information services. We provide interpretive consultation with one of the largest medical and scientific staffs in the industry. Our DIS business makes up over 95% of our consolidated net revenues.

    We assess our revenue performance for the DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition.

    Each requisition accompanies patient specimens, indicating the test(s) to be performed and the party to be billed for the test(s). Management utilizes requisition data to assist with assessing the growth of the business. Therefore, we believe that the change in the number of requisitions from period to period is useful information for investors as it allows them to assess our growth.

    Revenue per requisition is impacted by various factors, including, among other items, the impact of fee schedule changes (i.e. unit price), test mix, payer mix, and the number of tests per requisition. Management utilizes revenue per requisition data in order to assist with assessing various factors impacting the performance of the business, including pricing and trends impacting mix. Therefore, we believe that the change in this metric from period to period is useful information for investors as it allows them to assess such factors, which are relevant to assessing the revenue performance of the business.

    Diagnostic Solutions

    In our Diagnostic Solutions ("DS") businesses, which represents the balance of our consolidated net revenues, we are the leading provider of risk assessment services for the life insurance industry and we offer healthcare organizations and clinicians robust information technology solutions.

Third Quarter Highlights

•Our total net revenues of $2.79 billion were up 42.5% from the prior year period.

•In DIS:

◦Revenues of $2.71 billion increased by 44.3% compared to the prior year period, driven by demand for COVID-19 molecular and antibody testing, and, to a lesser extent, the impact of recent acquisitions, partially offset by a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing).

◦Volume, measured by the number of requisitions, increased by 19.7% compared to the prior year period, with organic growth (which excludes the impact of recent acquisitions) and acquisitions contributing approximately 16.6% and 3.1%, respectively. Organic volume growth was driven by demand for COVID-19 molecular testing, partially offset by declines in testing volumes in the base business. Testing volumes in the base business were negatively impacted by the COVID-19 pandemic and declined by 5% compared to the prior year period.

◦Revenue per requisition increased by 20.9% compared to the prior year period driven, in large part, by COVID-19 molecular testing.

•DS revenues of $77 million decreased by 1.9% compared to the prior year period.

•Income from continuing operations attributable to Quest Diagnostics' stockholders was $568 million, or $4.14 per diluted share, in 2020, compared to $215 million, or $1.56 per diluted share, in the prior year period.

•For the nine months ended September 30, 2020, net cash provided by operating activities was $1,464 million, compared to $895 million in the prior year period.

30

Impact of COVID - 19

    As a novel strain of coronavirus (“COVID-19”) continues to spread and severely impact the economy of the United States and other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. We have made substantial investments to expand the amount of COVID-19 testing available to the country and are currently capable of performing more than 200,000 COVID-19 molecular diagnostic tests per day to aid in the diagnosis of COVID-19 and approximately 200,000 COVID-19 antibody tests per day to aid in the detection of immune response. We have been effectively managing challenges in the global supply chain; and, at this point, we have sufficient supplies to conduct our business.

    We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep colleagues and customers healthy and safe. In line with recommendations to reduce large gatherings and increase social distancing, many of our office-based colleagues are working in a remote environment. We are evaluating the best way to bring them back into the office.

    During January and February 2020, we experienced growth in DIS revenues and volumes compared to the prior year period. However, in March and April 2020, we experienced a material decline in testing volumes due to the COVID-19 pandemic. During the last two weeks of March, volumes declined in excess of 40% compared to the prior year period, inclusive of COVID-19 testing, which continued in April with volume declines in the range of 50 to 60% compared to the prior year period as government policies were implemented to reduce the transmission of COVID-19. During May and June 2020, we began to experience a recovery in base testing volumes (which excludes COVID-19 molecular and antibody testing), which continued in the third quarter of 2020. Additionally, beginning during the second quarter, we experienced growing demand for COVID-19 testing services and have expanded our capacity in order to satisfy such demand. Volumes in our base business for the second and third quarters of 2020 decreased approximately 34% and 5%, respectively, compared to the prior year periods.

    The decrease in base testing volumes was driven by federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 which have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home policies, all of which have had, and we believe will continue to have, an impact on our operating results, financial position and cash flows, including continued declines in base testing volumes. It is also possible that we will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic. 

    During the second quarter of 2020, the decrease in base testing volumes was partially offset by COVID-19 molecular and antibody testing, including an increase in revenue per requisition driven in large part by COVID-19 molecular testing. During the third quarter of 2020, the decrease in base testing volumes was more than offset by the impact of the COVID-19 testing.

    In April 2020 the Centers for Medicare and Medicaid Services ("CMS") announced that it would increase the reimbursement for certain COVID-19 molecular tests making use of high-throughput technologies developed by the private sector that allow for increased testing capacity, faster results, and more effective means of combating the spread of the virus to $100 per test, effective April 14, 2020. In October 2020, CMS announced that, beginning January 1, 2021, Medicare will change the base reimbursement rate for COVID-19 diagnostic tests run on high-throughput technologies to $75 per test with an additional payment of $25 per test if certain additional requirements are met. In conjunction with our trade association, we are currently reviewing how this reimbursement policy will impact laboratories and the patients we serve.

    In order to mitigate the impact that the COVID-19 pandemic had on our business, we implemented a series of temporary actions in April 2020 to manage our workforce costs and preserve cash including temporary salary reductions; suspension of certain benefits; reduced hours for employees whose work has significantly declined; and approved furloughs for employees with diminished work requirements who expressed an interest. As our testing volumes started to recover, we recalled the vast majority of employees from furlough and reinstated full working hours for almost all employees who were asked to work reduced hours. By the end of the third quarter of 2020, salaries were restored for all exempt employees that had temporary salary reductions.

    We believe the COVID-19 pandemic’s impact on our consolidated results of operations, financial position and cash flows will be primarily driven by: the severity and duration of the COVID-19 pandemic; the COVID-19 pandemic’s impact on the U.S. healthcare system and the U.S. economy; and the timing, scope and effectiveness of federal, state and local

31

governmental responses to the COVID-19 pandemic. We may also be impacted by changes in the severity of the COVID-19 pandemic at different times in the various cities and regions where we operate and offer services. Even after the COVID-19 pandemic has moderated and the business and social distancing restrictions have eased, we may continue to experience similar effects to our businesses, consolidated results of operations, financial position and cash flows resulting from a recessionary economic environment that may persist. In the longer term, given the many challenges that hospitals will face, we may have more opportunities to partner with hospitals to help achieve their laboratory strategies, and the COVID-19 pandemic may also be a further catalyst for consolidation in the laboratory testing industry.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

    In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. Beginning in the second quarter of 2020, we started taking advantage of the temporary suspension of payment requirements for the employer portion of Social Security taxes.

    The CARES Act also includes a number of benefits that are applicable to us and other healthcare providers including, but not limited to:

•providing coverage for COVID-19 testing at no out-of-pocket cost to nearly all patients;

•providing clinical laboratories a one-year reprieve from the reporting requirements under the Protecting Access to Medicare Act ("PAMA") as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021. Further revisions of the Medicare Clinical Laboratory Fee Schedule for years after 2021 will be based on future surveys of market rates. Reimbursement reduction from 2022-2024 is capped by PAMA at 15% annually;

•appropriating $100 billion to health care providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic. In April 2020 and August 2020, we received approximately $65 million and $73 million, respectively, of funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act. In October 2020, we announced that we plan to return the entire $138 million of funds received. During the three months ended June 30, 2020, we recognized $65 million in other operating expense (income), net related to the first tranche of funds. During the three months ended September 30, 2020, we reversed the $65 million of funds that had previously been recognized in other operating expense (income), net. As of September 30, 2020, no amounts are recorded in our year-to-date consolidated statement of operations and the entire $138 million of funds that we intend to return are recorded in accounts payable and accrued expenses on our consolidated balance sheet; and

•suspending Medicare sequestration from May 2020 to December 2020. The suspension of the Medicare sequestration has resulted in a small benefit to us in the form of higher reimbursement rates for diagnostic testing services performed on behalf of Medicare beneficiaries.

Retirement of Debt

    During January 2020, we redeemed in full the outstanding indebtedness under our senior notes due January 2020 and senior notes due March 2020 using proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand. For the nine months ended September 30, 2020, we recorded a loss on retirement of debt, principally comprised of premiums paid, of $1 million in other income, net.

Senior Notes Offering

    During May 2020, we completed a senior notes offering, consisting of $550 million aggregate principal amount of 2.80% senior notes due June 2031 (the “2031 Senior Notes”), which were issued at an original issue discount of $1 million. In October 2020, we issued a redemption notice to the holders of our $550 million aggregate principal amount of 4.70% senior notes due April 2021, to redeem such notes in November 2020. We intend to use the net proceeds from the 2031 Senior Notes, along with cash on hand, to satisfy the redemption.

    For further details regarding our debt, see Notes 8 and 18 to the interim unaudited consolidated financial statements.

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Acquisition of Blueprint Genetics Oy

    On January 21, 2020, we completed the acquisition of Blueprint Genetics Oy ("Blueprint Genetics"), in an all cash transaction for $108 million, net of $3 million cash acquired. Blueprint Genetics is a leading specialty genetic testing company with deep expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics. Through the acquisition, we acquired all of Blueprint Genetics' operations. The acquired business is included in our DIS business.    

Acquisition of the Outreach Laboratory Services Business of Memorial Hermann Health System

    On April 6, 2020, we completed the acquisition of select assets which constitute substantially all of the operations of Memorial Hermann Diagnostic Laboratories, the outreach laboratory division of Memorial Hermann Health System ("Memorial Hermann") in an all cash transaction for $120 million. Memorial Hermann is a not-for-profit health system in Southeast Texas. The acquired business is included in our DIS business.

Acquisition of the Remaining 56% Interest in Mid America Clinical Laboratories, LLC

    On August 1, 2020, we completed the acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") from our joint venture partners in an all cash transaction for $93 million, net of $18 million cash acquired. MACL is the largest independent clinical laboratory provider in Indiana. Prior to the acquisition, we accounted for our 44% interest in MACL as an equity method investment which was remeasured to its fair value of $87 million on the acquisition date, resulting in a gain of $70 million that was recognized in other income, net in the consolidated statements of operations. As a result of the acquisition, MACL became our wholly owned subsidiary. The acquired business is included in our DIS business.

    For further details regarding our acquisitions, see Note 5 to the interim unaudited consolidated financial statements and Note 6 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

Invigorate Program

    We are engaged in a multi-year program called Invigorate, which is designed to reduce our cost structure and improve our performance. We currently aim annually to save approximately 3% of our costs. We are assessing whether the COVID-19 pandemic will impact our ability to achieve that objective in 2020.

    Invigorate has consisted of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, we identified key themes to change how we operate including reducing denials and patient concessions; further digitizing our business; standardization and automation; and optimization initiatives in our lab network and patient service center network. We believe that our efforts to standardize our information technology systems, equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility, empowering and enhancing the customer experience, facilitating the delivery of actionable insights and bolstering our large data platform.

    For the nine months ended September 30, 2020, we incurred $34 million of pre-tax charges under our Invigorate program primarily consisting of systems conversion and integration costs, all of which result in cash expenditures. Additional restructuring charges may be incurred in future periods as we identify additional opportunities to achieve further cost savings.

    For further details of the Invigorate program and associated costs, see Note 4 to the interim unaudited consolidated financial statements.    

Critical Accounting Policies and Estimates

    There have been no significant changes to our critical accounting policies from those disclosed in our 2019 Annual Report on Form 10-K except for the adoption of new accounting standards as described in Note 2 to the interim unaudited consolidated financial statements.

    Revenues and accounts receivable associated with DIS

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    The process for estimating revenues and the ultimate collection of receivables associated with our DIS business involves significant assumptions and judgments. We recognize as revenue the amount of consideration to which we expect to be entitled primarily upon completion of the testing process, when results are reported, or when services have been rendered. We estimate the amount of consideration we expect to be entitled to receive from customer groups, using the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials, and price concessions. The portfolios determined using the portfolio approach consist of the following customers:

•Healthcare Insurers

•Government Payers (Medicare and Medicaid programs)

•Client Payers

•Patients

    We have a standardized approach to estimate the amount of consideration that we expect to be entitled to; this standardized approach considers, among other things, the impact of contractual allowances, including payer denials, and price concessions. Historical collection and payer reimbursement experience (along with the period the receivables have been outstanding), as well as other factors including current market conditions, are integral parts of the estimation process related to revenues and receivables. Adjustments to our estimated contractual allowances and implicit price concessions are recorded in the current period as changes in estimates. Further adjustments, based on actual receipts, may be recorded upon settlement.

    Although we believe that our estimates for contractual allowances and patient price concessions as well as our allowance for credit losses are appropriate, it is possible that we will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic. For further details on revenue and receivables, see Note 15 to the interim unaudited consolidated financial statements.

     Accounting for and recoverability of goodwill

    We do not amortize goodwill, but evaluate the recoverability and measure the potential impairment of our goodwill annually, or more frequently, in the case of other events that indicate a potential impairment.

    Goodwill is evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The annual impairment test includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value; the qualitative analysis may be performed prior to, or as an alternative to, performing a quantitative goodwill impairment test. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, we assess relevant events and circumstances, such as: (a) macroeconomic conditions; (b) industry and market considerations; (c) cost factors; (d) overall financial performance; (e) other relevant entity-specific events; (f) events affecting a reporting unit; and (g) a sustained decrease in share price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we are required to perform the quantitative goodwill impairment test. Otherwise, no further analysis is required.

    On a quarterly basis, we perform a review of our business to determine if events or changes in circumstances have occurred that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If such events or changes in circumstances were deemed to have occurred, we would perform an impairment test of goodwill and record any noted impairment loss. In conjunction with the preparation of our September 30, 2020 financial statements, we performed such review and concluded that no impairment test was necessary. However, should the impact of the COVID-19 pandemic be significantly worse than currently expected, it is possible that we could incur impairment charges in the future.

Impact of New Accounting Standards

    The adoption of new accounting standards is discussed in Note 2 to the interim unaudited consolidated financial statements.

    The impact of recent accounting pronouncements not yet effective on our consolidated financial statements is discussed in Note 2 to the interim unaudited consolidated financial statements.

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Results of Operations    

    The following tables set forth certain results of operations data for the periods presented:

	Three Months Ended September 30,										Nine Months Ended September 30,
	2020			2019			$ Change		% Change		2020			2019			$ Change		% Change
	(dollars in millions, except per share amounts)
Net revenues:
DIS business	$	2,709		$	1,877		$	832	44.3	%	$	6,217		$	5,561		$	656	11.8	%
DS businesses	77			79			(2)		(1.9)		218			239			(21)		(8.6)
Total net revenues	$	2,786		$	1,956		$	830	42.5	%	$	6,435		$	5,800		$	635	11.0	%
Operating costs and expenses and other operating income:
Cost of services	$	1,580		$	1,264		$	316	25.0	%	$	4,071		$	3,773		$	298	7.9	%
Selling, general and administrative	396			362			34		9.5		1,103			1,108			(5)		(0.4)
Amortization of intangible assets	27			23			4		12.8		77			72			5		5.9
Other operating expense (income), net	65			(6)			71		NM		8			(21)			29		NM
Total operating costs and expenses, net	$	2,068		$	1,643		$	425	25.9	%	$	5,259		$	4,932		$	327	6.6	%
Operating income	$	718		$	313		$	405	129.5	%	$	1,176		$	868		$	308	35.5	%
Other income (expense):
Interest expense, net	$	(42)		$	(44)		$	2	(3.3)	%	$	(124)		$	(133)		$	9	(6.6)	%
Other income, net	77			1			76		NM		74			13			61		NM
Total non-operating income (expense), net	$	35		$	(43)		$	78	NM		$	(50)		$	(120)		$	70	NM
Income tax expense	$	(177)		$	(62)		$	(115)	187.2	%	$	(269)		$	(175)		$	(94)	54.0	%
Effective income tax rate	23.7		%	22.9		%					23.9		%	23.4		%
Equity in earnings of equity method investees, net of taxes	$	15		$	18		$	(3)	(9.1)	%	$	33		$	48		$	(15)	(29.9)	%
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$	568		$	215		$	353	164.7	%	$	852		$	585		$	267	45.6	%
Income from discontinued operations, net of taxes	$	—		$	—		$	—	NM		$	—		$	20		$	(20)	NM
Diluted earnings per common share from continuing operations attributable to Quest Diagnostics' common stockholders	$	4.14		$	1.56		$	2.58	164.6	%	$	6.25		$	4.27		$	1.98	46.0	%
NM - Not Meaningful

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    The following table sets forth certain results of operations data as a percentage of net revenues for the periods presented:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues:
DIS business	97.2	%	96.0	%	96.6	%	95.9	%
DS businesses	2.8		4.0		3.4		4.1
Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs and expenses and other operating income:
Cost of services	56.7	%	64.6	%	63.3	%	65.1	%
Selling, general and administrative	14.2		18.5		17.1		19.1
Amortization of intangible assets	1.0		1.2		1.2		1.2
Other operating expense (income), net	2.3		(0.3)		0.1		(0.4)
Total operating costs and expenses, net	74.2	%	84.0	%	81.7	%	85.0	%
Operating income	25.8	%	16.0	%	18.3	%	15.0	%

    Operating Results

    Results for the three months ended September 30, 2020 were affected by certain items that on a net basis reduced diluted earnings per share by $0.17 as follows:

•net pre-tax charges of $69 million (charges of $65 million in other operating expense (income), net, $3 million in cost of services and $1 million in equity in earnings of equity method investees, net of taxes), or $0.39 per diluted share, representing the impact of certain items resulting from the COVID-19 pandemic, including the reversal of $65 million of income previously recognized during the second quarter of 2020 attributable to the receipt of funds from the government that were appropriated to healthcare providers under the CARES Act and, to a lesser extent, incremental costs incurred primarily to protect the health and safety of our employees and customers;

•pre-tax amortization expense of $30 million ($27 million in amortization of intangible assets and $3 million in equity in earnings of equity method investees, net of taxes) or $0.16 per diluted share; and

•pre-tax charges of $18 million ($11 million in cost of services and $7 million in selling, general and administrative expenses), or $0.10 per diluted share, representing costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; partially offset by

•a pre-tax gain of $70 million, or $0.46 per diluted share, recognized in other income, net based on the difference between the fair value and the carrying value of an equity interest; and

•excess tax benefits associated with stock-based compensation arrangements of $3 million, or $0.02 per diluted share, recorded in income tax expense.

    Results for the nine months ended September 30, 2020 were affected by certain items that on a net basis reduced diluted earnings per share by $0.44 as follows:

•pre-tax amortization expense of $86 million ($77 million in amortization of intangible assets and $9 million in equity in earnings of equity method investees, net of taxes) or $0.47 per diluted share;

•pre-tax charges of $52 million ($38 million of charges in cost of services, $8 million of charges in selling, general and administrative expenses and $8 million of charges in other operating expense (income), net, partially offset by a $2 million gain in equity in earnings of equity method investees, net of taxes), or $0.29 per diluted share, representing the impact of certain items resulting from the COVID-19 pandemic, principally including expense associated with a one-time payment to eligible employees to help offset expenses they incurred as a result of COVID-19, certain asset impairment charges, and incremental costs incurred primarily to protect the health and safety of our employees and customers; and

•pre-tax charges of $43 million ($21 million in cost of services and $22 million in selling, general and administrative expenses), or $0.25 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; partially offset by

•a pre-tax gain of $70 million, or $0.46 per diluted share, recognized in other income, net based on the difference between the fair value and the carrying value of an equity interest; and

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•excess tax benefits associated with stock-based compensation arrangements of $15 million, or $0.11 per diluted share, recorded in income tax expense.

    Results for the three months ended September 30, 2019 were affected by certain items that on a net basis reduced diluted earnings per share by $0.20 as follows:

•pre-tax amortization expense of $25 million ($23 million in amortization of intangible assets and $2 million in equity in earnings of equity method investees, net of taxes) or $0.14 per diluted share; and

•pre-tax charges of $16 million ($7 million in cost of services and $9 million in selling, general and administrative expenses), or $0.09 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; partially offset by

•a net pre-tax gain of $3 million (a $7 million gain in other operating expense (income), net partially offset by a $4 million charge in selling, general and administrative expenses), or $0.01 per diluted share, primarily due to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition partially offset by costs incurred related to a data security incident, and

•excess tax benefits associated with stock-based compensation arrangements of $3 million, or $0.02 per diluted share, recorded in income tax expense.

    Results for the nine months ended September 30, 2019 were affected by certain items that on a net basis reduced diluted earnings per share by $0.62 as follows:

•pre-tax amortization expense of $84 million ($72 million in amortization of intangible assets and $12 million in equity in earnings of equity method investees, net of taxes) or $0.46 per diluted share; and

•pre-tax charges of $64 million ($29 million in cost of services and $35 million in selling, general and administrative expenses), or $0.35 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; partially offset by

•a net pre-tax gain of $17 million (a $22 million gain in other operating expense (income), net partially offset by a $5 million charge in selling, general and administrative expenses), or $0.11 per diluted share, primarily due to a gain associated with an insurance claim for hurricane related losses, and a gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, partially offset by non-cash asset impairment charges, and costs incurred related to a data security incident, and

•excess tax benefits associated with stock-based compensation arrangements of $11 million, or $0.08 per diluted share, recorded in income tax expense.

    Net Revenues

    Net revenues for the three months ended September 30, 2020 increased by 42.5% compared to the prior year period.

    DIS revenues for the three months ended September 30, 2020 increased by 44.3% compared to the prior year period driven by demand for COVID-19 molecular and antibody testing, and, to a lesser extent, the impact of recent acquisitions, partially offset by a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing). For the three months ended September 30, 2020:

•Organic revenue and acquisitions contributed approximately 41.8% and 2.5%, respectively, to DIS revenue growth compared to the prior year period.

•DIS volume increased by 19.7% with organic volume and acquisitions contributing approximately 16.6% and 3.1%, respectively. Organic volume growth was driven by demand for COVID-19 molecular testing, partially offset by declines in testing volumes in the base business. Testing volumes in the base business were negatively impacted by the COVID-19 pandemic and declined by 5% compared to the prior year period.

•Revenue per requisition increased by 20.9% compared to the prior year period primarily due to favorable mix, driven in large part by COVID-19 molecular testing; partially offset by reimbursement pressure, including unit price reductions associated with PAMA and all other sources, of approximately 1.7%.

    Net revenues for the nine months ended September 30, 2020 increased by 11.0% compared to the prior year period.

    DIS revenues for the nine months ended September 30, 2020 increased by 11.8% compared to the prior year period driven by demand for COVID-19 molecular and antibody testing, and, to a lesser extent, the impact of recent acquisitions, partially offset by a decline in testing volume in our base business. For the nine months ended September 30, 2020:

•Organic revenue and acquisitions contributed approximately 10.5% and 1.3%, respectively, to DIS revenue growth compared to the prior year period.

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•DIS volume decreased by 0.1%, with organic volume down approximately 1.4%, partially offset by volume associated with recent acquisitions of 1.3%. Organic volume was negatively impacted by declines in testing volumes in the base business due to the COVID-19 pandemic, partially offset by COVID-19 molecular and antibody testing and, to a lesser extent, the impact of an extra business day in 2020 and the impact of weather in the prior year period, both of which favorably impacted the comparison by approximately 1.0%. Testing volumes in the base business declined approximately 14.4% for the nine months ended September 30, 2020 compared to the prior year period.

•Revenue per requisition increased by 12.4% compared to the prior year period primarily due to favorable mix, driven in large part by COVID-19 molecular testing; partially offset by reimbursement pressure, including unit price reductions associated with PAMA and all other sources, of approximately 1.8%.

    Cost of Services

    Cost of services consists principally of costs for obtaining, transporting and testing specimens as well as facility costs used for the delivery of our services.

    For the three months ended September 30, 2020, cost of services increased by $316 million compared to the prior year period. The increase was primarily driven by higher variable expenses related to increased testing volumes as well as test mix and a higher supply cost associated with COVID-19 testing, and higher performance-based compensation.

    For the nine months ended September 30, 2020, cost of services increased by $298 million compared to the prior year period. The increase was primarily driven by higher variable expenses related to test mix and a higher supply cost associated with COVID-19 testing, higher performance-based compensation, and incremental costs incurred related to the COVID-19 pandemic including expense associated with a one-time payment to eligible employees to help offset expenses they incurred as a result of COVID-19. These increases were partially offset by lower compensation and benefit costs as a result of a series of temporary actions implemented to manage our workforce costs.

    Selling, General and Administrative Expenses ("SG&A")

    SG&A consist principally of the costs associated with our sales and marketing efforts, billing operations, credit loss expense and general management and administrative support as well as administrative facility costs.

    SG&A increased by $34 million for the three months ended September 30, 2020, compared to the prior year period, primarily driven by higher performance-based compensation costs, and higher costs associated with changes in the value of our deferred compensation obligations, partially offset by lower travel related costs.

    SG&A decreased by $5 million for the nine months ended September 30, 2020, compared to the prior year period primarily driven by lower compensation and benefit costs as a result of a series of temporary actions implemented to manage our workforce costs, lower travel related costs, lower costs associated with our Invigorate program, and lower costs associated with changes in the value of our deferred compensation obligations, partially offset by higher performance-based compensation costs.

    The change in the value of our deferred compensation obligations is largely offset by gains or losses due to the changes in the value of the associated investments, which are recorded in other income, net. For further details regarding our deferred compensation plans, see Note 17 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    Amortization Expense

    For the three and nine months ended September 30, 2020, amortization expense increased by $4 million and $5 million, respectively, compared to the prior year periods as a result of recent acquisitions.

    Other Operating Expense (Income), Net

    Other operating expense (income), net includes miscellaneous income and expense items and other charges related to operating activities.

    For the three months ended September 30, 2020, other operating expense (income), net primarily represents the reversal of $65 million of income that was previously recognized during the three months ended June 30, 2020 relating to the receipt of funds that were appropriated to healthcare providers under the CARES Act (see Note 11 to the interim unaudited consolidated financial statements).

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    For the nine months ended September 30, 2020, other operating expense (income), net primarily represents impairment charges due to the impact of the COVID-19 pandemic.

    For the three months ended September 30, 2019, other operating expense (income), net primarily represents a gain associated with the decrease in the fair value of a contingent consideration accrual associated with a previous acquisition.

    For the nine months ended September 30, 2019, other operating expense (income), net includes a $12 million gain associated with an insurance claim for hurricane related losses and a $12 million gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, partially offset by non-cash asset impairment charges of $2 million.

    Interest Expense, Net

    Interest expense, net decreased for both the three and nine months ended September 30, 2020 compared to the prior year periods, primarily driven by lower interest rates associated with our variable rate indebtedness, partially offset by higher average outstanding indebtedness.

    Other Income, Net

    Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets.

    For the three and nine months ended September 30, 2020, other income, net increased by $76 million and $61 million, respectively, compared to the prior year periods. For the three months ended September 30, 2020, the increase was primarily due to a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value (see Note 5 to the interim unaudited consolidated financial statements) and higher gains associated with investments in our deferred compensation plans compared to the prior year period. For the nine months ended September 30, 2020, the increase was primarily due to a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value (see Note 5 to the interim unaudited consolidated financial statements), partially offset by lower gains associated with investments in our deferred compensation plans compared to the prior year period.

    Income Tax Expense

    Income tax expense for the three months ended September 30, 2020 and 2019 was $177 million and $62 million, respectively. Income tax expense for the nine months ended September 30, 2020 and 2019 was $269 million and $175 million, respectively. The increase in income tax expense for both the three and nine months ended September 30, 2020 compared to the prior year period was primarily driven by an increase in income from continuing operations before income taxes and equity in earnings of equity method investees.

    For the three months ended September 30, 2020 and 2019, the effective income tax rate was 23.7% and 22.9%, respectively. The effective income tax rate for the three months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value; and $3 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the three months ended September 30, 2019 benefited from a $6 million income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards; and $3 million of excess tax benefits associated with stock-based compensation arrangements.

    For the nine months ended September 30, 2020 and 2019, the effective income tax rate was 23.9% and 23.4%, respectively. The effective income tax rate for the nine months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value; and $15 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the nine months ended September 30, 2019 benefited from $11 million of excess tax benefits associated with stock-based compensation arrangements; and a $10 million income tax benefit due to the release of valuation allowances associated with net operating loss carryforwards.

    The effective income tax rate associated with the $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value was 11.8% due to a permanent difference in the financial reporting and tax basis of goodwill.

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    For both the three and nine months ended September 30, 2020, we utilized the most likely estimate of our annual income before taxes to determine the annual effective income tax rate for 2020. As a result of uncertainty associated with the impact of the COVID-19 pandemic, it is possible that we will experience variability in the annual projections and, as a result, the annual effective income tax rate.

    Equity in Earnings of Equity Method Investees, Net of Taxes

    Equity in earnings of equity method investees, net of taxes decreased for the three and nine months ended September 30, 2020 by $3 million and $15 million, respectively, compared to the prior year periods primarily due to the impact of the COVID-19 pandemic on our equity method investees.

    Discontinued Operations

    During the third quarter of 2006, we completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which has been classified as discontinued operations for the nine months ended September 30, 2019. Income from discontinued operations, net of taxes, for the nine months ended September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID.

Quantitative and Qualitative Disclosures About Market Risk

    We address our exposure to market risks, principally the risk of changes in interest rates, through a controlled program of risk management that includes the use of derivative financial instruments. We do not hold or issue derivative financial instruments for speculative purposes. We seek to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve this objective, we have historically entered into interest rate swaps. Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements are recognized as an adjustment to interest expense. We believe that our exposures to foreign exchange impacts and changes in commodity prices are not material to our consolidated results of operations or financial position.

    As of September 30, 2020 and December 31, 2019, the fair value of our debt was estimated at approximately $5.2 billion and $5.1 billion, respectively, principally using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. As of September 30, 2020 and December 31, 2019, the estimated fair value exceeded the carrying value of the debt by $609 million and $313 million, respectively. A hypothetical 10% increase in interest rates (representing 17 basis points as of September 30, 2020 and 28 basis points as of December 31, 2019) would potentially reduce the estimated fair value of our debt by approximately $84 million and $100 million as of September 30, 2020 and December 31, 2019, respectively.

    Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates. Interest on our secured receivables credit facility is based on either a rate that is intended to approximate commercial paper rates for highly rated issuers, or LIBOR, plus a spread. As of September 30, 2020, interest on our senior unsecured revolving credit facility is subject to a pricing schedule that can fluctuate based on changes in our credit ratings and our leverage ratio. As such, our borrowing cost under this credit arrangement will be subject to fluctuations in interest rates, our leverage ratio and changes in our credit ratings. As of September 30, 2020, the borrowing rates under these debt instruments were: for our secured receivables credit facility, commercial paper rates for highly rated issuers, or LIBOR, plus a spread of 0.70% to 0.725%; and for our senior unsecured revolving credit facility, LIBOR plus 1.125%. During October 2020, we amended the secured receivables credit facility and the borrowing rates are now based on commercial paper rates for highly rated issuers, or LIBOR, plus a spread of 0.825% to 0.95%. As of September 30, 2020, there were no borrowings outstanding under either our $600 million secured receivables credit facility or our $750 million senior unsecured revolving credit facility. The amendment to the secured receivables credit facility did not change the total borrowing capacity under the facility.

    In April 2020, we terminated our existing fixed-to-variable interest rate swap agreements. Based on our remaining net exposure to interest rate changes, a hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change annual interest expense.

    During March 2020, we entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $25 million. Additionally, during May 2020, we entered into interest rate lock agreements with several financial institutions for a total notional amount of $275 million. The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of our interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten-year period related to an anticipated issuance of debt and were accounted for as cash flow hedges. In connection with the issuance of the 2031 Senior Notes, these agreements were settled

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and we received net proceeds of $1 million. The net gain is deferred in stockholders' equity, net of taxes, as a component of accumulated other comprehensive loss, and is being amortized as an adjustment to interest expense, net over a ten-year period.

    For further details regarding our outstanding debt, see Notes 8 and 18 to the interim unaudited consolidated financial statements and Note 13 to the audited consolidated financial statements included in our 2019 Annual Report on Form 10-K. For details regarding our financial instruments and hedging activities, see Note 9 to the interim unaudited consolidated financial statements and Note 15 to the audited consolidated financial statements included in our 2019 Annual Report on Form 10-K.

    Risk Associated with Investment Portfolio

    Our investment portfolio includes equity investments comprised primarily of strategic holdings in privately and publicly held companies. These securities are exposed to price fluctuations and are generally concentrated in the life sciences and healthcare industries. Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with readily determinable fair values are measured at fair value with changes in fair value recognized in net income. Equity investments that do not have readily determinable fair values are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes; we regularly evaluate these equity investments to determine if there are any indicators that the investment is impaired. The carrying value of our equity investments that do not have readily determinable fair values was $25 million as of September 30, 2020.

    We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.

    In conjunction with the preparation of our September 30, 2020 financial statements, we considered whether the carrying values of such investments were impaired and concluded that no such impairment existed. However, should the impact of the COVID-19 pandemic be worse than currently expected, it is possible that we could incur impairment charges in the future.

Liquidity and Capital Resources

	Nine Months Ended September 30,				Change
	2020		2019
	(dollars in millions)
Net cash provided by operating activities	$	1,464	$	895	$	569
Net cash used in investing activities	(604)		(311)		(293)
Net cash used in financing activities	(447)		(285)		(162)
Net change in cash and cash equivalents and restricted cash	$	413	$	299	$	114

    Cash and Cash Equivalents

    Cash and cash equivalents consist of cash and highly-liquid short-term investments. Cash and cash equivalents as of September 30, 2020 totaled $1,605 million, compared to $1,192 million as of December 31, 2019.

    As of September 30, 2020, approximately 2% of our $1,605 million of consolidated cash and cash equivalents were held outside of the United States.

    Cash Flows from Operating Activities

    Net cash provided by operating activities for the nine months ended September 30, 2020 and 2019 was $1,464 million and $895 million, respectively. The $569 million increase in net cash provided by operating activities for the nine months ended September 30, 2020, compared to the prior year period was primarily a result of:

•higher operating income in 2020 as compared to 2019;

•$138 million of proceeds that we received in 2020 from funds that were appropriated to healthcare providers under the CARES Act (during October 2020 we announced our plan to return such funds);

•timing of movements in our working capital accounts including as a result of the temporary suspension of certain payment requirements for the employer portion of Social Security taxes; and

•$40 million of proceeds received in 2020 from the termination of interest rate swaps; partially offset by

•higher performance-based compensation payments in 2020 compared to 2019; and

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•a $28 million refund received in the prior year period from the taxing authorities associated with the favorable resolution of certain tax contingencies related to a discontinued operation.

    Days sales outstanding, a measure of billing and collection efficiency, was 47 days as of September 30, 2020, 54 days as of December 31, 2019 and 52 days as of September 30, 2019. The decrease in DSO is partially due to recent fluctuations in our monthly revenue due to the impact of the COVID-19 pandemic. Although we believe that our current revenue reserves and allowance for credit losses are appropriate, it is possible that we will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic. 

    Cash Flows from Investing Activities

    Net cash used in investing activities for the nine months ended September 30, 2020 and 2019 was $604 million and $311 million, respectively. This $293 million increase in cash used in investing activities for the nine months ended September 30, 2020, compared to the prior year period was primarily a result of:

•a $273 million increase in net cash paid for business acquisitions; and

•a $28 million increase in capital expenditures.

    Cash Flows from Financing Activities

    Net cash used in financing activities for the nine months ended September 30, 2020 and 2019 was $447 million and $285 million, respectively. This $162 million increase in cash used in financing activities for the nine months ended September 30, 2020, compared to the prior year period was primarily a result of:

•$253 million of net debt repayments (repayments of debt less proceeds from borrowings) in 2020 compared to $36 million of net borrowings in 2019; partially offset by

•a $78 million decrease in repurchases of our common stock (see "Share Repurchase Program" for further details); and

•a $46 million increase in proceeds from the exercise of stock options, which was a result of an increase in the volume of stock options exercised and the average exercise price compared to the prior year.

    During the nine months ended September 30, 2020, we completed the issuance of the 2031 Senior Notes. Additionally, during the nine months ended September 30, 2020, we redeemed in full the outstanding indebtedness under our senior notes due January 2020 and senior notes due March 2020 using proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand. During the nine months ended September 30, 2020, we borrowed $100 million under our secured receivables credit facility and $100 million under our senior unsecured revolving credit facility, both of which were repaid prior to September 30, 2020.

    During the nine months ended September 30, 2019, we completed the issuance of the senior notes due June 2029 and repaid in full our $300 million senior notes due April 1, 2019 at maturity. In addition, there were $985 million in cumulative borrowings under the secured receivables credit facility primarily associated with working capital requirements as well as the funding of our 2019 acquisition and $1,145 million in repayments under our secured receivables credit facility. During the nine months ended September 30, 2019, there were no borrowings under our senior unsecured revolving credit facility.    

    Dividend Program

    During each of the first three quarters of 2020, our Board of Directors declared a quarterly cash dividend of $0.56 per common share. During each of the four quarters of 2019, our Board of Directors declared a quarterly cash dividend of $0.53 per common share.

    Share Repurchase Program

    As of September 30, 2020, $1.2 billion remained available under our share repurchase authorizations; however, in April 2020, we temporarily suspended additional share repurchases under the existing authorization. The share repurchase authorization has no set expiration or termination date.

    Share Repurchases

    For the nine months ended September 30, 2020, we repurchased 0.7 million shares of our common stock for $75 million.

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    For the nine months ended September 30, 2019, we repurchased 1.6 million shares of our common stock for $150 million.

    Contractual Obligations and Commitments

    The following table summarizes certain of our contractual obligations as of September 30, 2020:

	Payments due by period
Contractual Obligations	Total		Remainder of 2020		1-3 years		4-5 years		After 5 years
	(dollars in millions)
Outstanding debt	$	4,526	$	—	$	551	$	300	$	3,675
Finance lease obligations	31		1		5		4		21
Interest payments on outstanding debt	1,716		60		321		301		1,034
Operating leases	748		41		335		215		157
Purchase obligations	1,677		86		625		494		472
Total contractual obligations	$	8,698	$	188	$	1,837	$	1,314	$	5,359

    A description of the terms of our indebtedness and related debt service requirements and future payments of our outstanding debt is contained in Note 8 to the interim unaudited consolidated financial statements and Note 13 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    Interest payments on our outstanding debt include interest associated with finance lease obligations and have been calculated using the interest rates as of September 30, 2020 applied to the September 30, 2020 balances, which are assumed to remain outstanding through their maturity dates.

    Operating lease obligations include variable charges (primarily maintenance fees and utilities associated with our real estate leases) in effect as of September 30, 2020. A discussion and analysis regarding our operating lease obligations is contained in Note 14 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    Purchase obligations include our noncancelable commitments to purchase products or services as described in Note 18 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    As of September 30, 2020, our total liabilities associated with unrecognized tax benefits were approximately $79 million, which were excluded from the table above. We expect that these liabilities may decrease by less than $10 million within the next twelve months, primarily as a result of payments, settlements, expiration of statutes of limitations and/or the conclusion of tax examinations on certain tax positions. For the remainder, we cannot make reasonably reliable estimates of the timing of the future payments of these liabilities. See Note 8 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K for information regarding our contingent tax liability reserves.

    In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass"), we granted UMass the right to require us to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of September 30, 2020, the fair value of the redeemable noncontrolling interest on the interim unaudited consolidated balance sheet was $80 million, which was excluded from the table above. Since the redemption of the noncontrolling interest is outside of our control, we cannot make a reasonably reliable estimate of the timing of the future payment, if any, of the redeemable noncontrolling interest. For further details regarding the redeemable noncontrolling interest, see Note 10 to the interim unaudited consolidated financial statements and Note 16 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    Equity Method Investees

    Our equity method investees primarily consist of our clinical trials central laboratory services joint venture and our diagnostic information services joint venture, which are accounted for under the equity method of accounting. Our investment in equity method investees is less than 5% of our consolidated total assets. Our proportionate share of income before income taxes associated with our equity method investees is less than 5% of our consolidated income from continuing operations before income taxes and equity in earnings of equity method investees. We partially guarantee a lease obligation of one of our equity method investees, payment under such guarantee is not likely at this time and we have no other material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.

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    In conjunction with the preparation of our September 30, 2020 financial statements, we considered whether the carrying values of our equity method investments were impaired and concluded that no such impairment existed. However, should the impact of the COVID-19 pandemic be worse than currently expected, it is possible that we could incur impairment charges in the future.

    For further details regarding related party transactions with our equity method investees, see Note 14 to the interim unaudited consolidated financial statements and Note 20 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

    Requirements and Capital Resources

    We estimate that we will invest approximately $400 million during 2020 for capital expenditures, to support and grow our existing operations, principally related to investments in information technology, laboratory equipment and facilities, including our new multi-year laboratory construction in New Jersey, and additional investments in our advanced and consumer growth strategies.

    Together with the Quest Diagnostics Foundation, we launched a multi-year initiative to reduce health disparities in underserved communities, including those impacted by the COVID-19 pandemic. As part of this initiative, we plan to donate testing services and fund a range of initiatives estimated to total more than $100 million aimed at improving access to testing and awareness of the value of diagnostic insights in managing overall health.

    In April 2020 and August 2020, we received approximately $65 million and $73 million, respectively, of funds from the government that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act. During October 2020, we announced our plan to return the entire $138 million of funds received.

    As of September 30, 2020, we had $1.3 billion of borrowing capacity available under our existing credit facilities, including $529 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. There were no outstanding borrowings under these credit facilities as of September 30, 2020. The secured receivables credit facility includes a $250 million loan commitment which matures in October 2021, and a $250 million loan commitment and a $100 million letter of credit facility which mature in October 2022. The senior unsecured revolving credit facility matures in March 2023. For further details regarding the credit facilities, see Note 13 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K and Notes 8 and 18 to the interim unaudited consolidated financial statements.

    Our secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. Our senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. As of September 30, 2020, we were in compliance with all such applicable financial covenants.

    We believe that the COVID-19 pandemic has had and may continue to have an impact our consolidated results of operations, financial position, and cash flows, including declines in testing volumes for our base business (which excludes COVID-19 molecular and antibody testing), the extent of which will continue to be primarily driven by: the severity and duration of the COVID-19 pandemic; the COVID-19 pandemic’s impact on the U.S. healthcare system and the U.S. economy; and the timing, scope and effectiveness of federal, state and local governmental responses to the COVID-19 pandemic. It is also possible that we will experience an impact on cash collections of our accounts receivable as a result of the impact of the COVID-19 pandemic.

    We took certain actions to preserve liquidity. We temporarily suspended share repurchases under our existing share repurchase authorization, and, in April 2020, implemented a series of temporary actions to manage our workforce costs.

    In addition, we took certain steps to ensure adequate access to liquidity. In April 2020, we entered into an amendment to our senior unsecured revolving credit facility in order to provide for increased flexibility. Pursuant to the amendment, the leverage ratio covenant was increased as follows:

As of:	Applicable Covenant:
September 30, 2020	no more than 5.5 times EBITDA
December 31, 2020	no more than 6.5 times EBITDA
March 31, 2021	no more than 6.25 times EBITDA
June 30, 2021	no more than 4.5 times EBITDA

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    Thereafter, the leverage ratio covenant reverts to no more than 3.5 times EBITDA. During the period that the increased covenant applies, which period may be terminated early by us provided that we are in compliance with the historical 3.5 times EBITDA leverage ratio, the amended credit agreement contains certain additional limitations and restrictions including, but not limited to, repurchases of our common stock, the amount of funds that can be used on business acquisitions, the incurrence of secured indebtedness and the payment of dividends. Interest on the amended senior unsecured revolving credit facility is subject to a pricing schedule that can fluctuate based on changes in our credit ratings and current EBITDA leverage ratio.

    In addition, in May 2020, we completed a senior notes offering, consisting of $550 million aggregate principal amount of 2.80% senior notes due June 2031, which were issued at an original issue discount of $1 million. In October 2020, we issued a redemption notice to the holders of our $550 million aggregate principal amount of 4.70% senior notes due April 2021, to redeem such notes in November 2020. We intend to use the net proceeds from the 2031 Senior Notes, along with cash on hand, to satisfy the redemption.

    We believe that our cash and cash equivalents and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, and additional growth opportunities for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.

Forward-Looking Statements

    Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, impacts of the COVID-19 pandemic and measures taken in response, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Factors that May Affect Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

    See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 4.    Controls and Procedures

    Management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

    During the third quarter of 2020, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

    See Note 12 to the interim unaudited consolidated financial statements for information regarding the status of legal proceedings involving the Company.

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Item 1A. Risk Factors

    Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 include a discussion of our risk factors. There have been no material changes in the risk factors described in those reports.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

    The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the third quarter of 2020.

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs  (in thousands)
July 1, 2020 – July 31, 2020
Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	—	$	—	N/A	N/A
August 1, 2020 – August 31, 2020
Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	875	$	120.58	N/A	N/A
September 1, 2020 – September 30, 2020
Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	—	$	—	N/A	N/A
Total
Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	875	$	120.58	N/A	N/A

(A)Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $9 billion of share repurchases of our common stock through September 30, 2020. The share repurchase authorization has no set expiration or termination date.

(B)Includes: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of stock options (granted under the Company’s Amended and Restated Employee Long-Term Incentive Plan) who exercised options; and (2) shares withheld (under the terms of grants under the Amended and Restated Employee Long-Term Incentive Plan) to offset tax withholding obligations that occur upon the delivery of outstanding common shares underlying restricted stock units and performance share units.

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Item 6.Exhibits

    Exhibits:

31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
10.1	Amendment No. 6 to The Profit Sharing Plan of Quest Diagnostics Incorporated
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document - dgx-20200930.xsd
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document - dgx-20200930_cal.xml
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document - dgx-20200930_def.xml
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document - dgx-20200930_lab.xml
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document - dgx-20200930_pre.xml
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

47

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

October 23, 2020

Quest Diagnostics Incorporated

By	/s/ Stephen H. Rusckowski
	Stephen H. Rusckowski
	Chairman, Chief Executive Officer
	and President
By	/s/ Mark J. Guinan
	Mark J. Guinan
	Executive Vice President and
	Chief Financial Officer

48

EX-10.1

Exhibit 10.1

AMENDMENT NO. 6 TO

THE PROFIT SHARING PLAN OF

QUEST DIAGNOSTICS INCORPORATED

The Profit Sharing Plan of Quest Diagnostics Incorporated, as presently maintained under an amendment and restatement effective as of January 1, 2016 (the “Plan”), is hereby amended in the following respects, effective with respect to all payroll dates occurring on or after January 1, 2021, except as otherwise provided below:

1. Paragraph (a) of Section 3.2 of the Plan (“Matching Contributions”) is amended in its entirety to read as follows:

(a) The Employer shall make Employer Matching Contributions to the Trust Fund equal to 100% of the Employee Pre-Tax Contributions made by each Eligible Employee with respect to each payroll period, but taking into account only those Employee Pre-Tax Contributions made by him with respect to such payroll period which are made at a rate that does not exceed 5% of his Deferral Compensation (but only up to the Code Section 401(a)(17)(B) limit). Employer Matching Contributions may be made, at the discretion of Quest Diagnostics, solely in cash, solely in Quest Diagnostics Common Stock or in a combination of cash and Quest Diagnostics Common Stock.

2. Paragraph (e) of Section 3.2 is deleted in its entirety.

3. Section 3.6 of the Plan (“Section 401(k) Actual Deferral Percentage Test”) is amended in its entirety to read as follows:

3.6 Actual Deferral Percentage Test Safe Harbor

The Plan is intended to satisfy Code Section 401(k)(3)(A)(ii) (the “ADP Test”) since: (1)(A) the rate of Employer Matching Contributions does not increase as a Participant’s rate of Employee Pre-Tax Contributions increases, (B) the aggregate amount of Employer Matching Contributions at each rate of Employee Pre-Tax Contributions is at least equal to the aggregate amount of Employer Matching Contributions that would be made if Employer Matching Contributions were made on the basis of the percentages described in Code Section 401(k)(12)(B)(i), and (C) the rate of Employer Matching Contributions with respect to any Employee Pre-Tax Contributions of a Highly Compensated Employee at any rate of Employee Pre-Tax Contributions is not greater than that with respect to an Eligible Employee who is not a

1

Exhibit 10.1

Highly Compensated Employee; and (2) the Plan Administrator provides each Eligible Employee, within a reasonable period before the Plan Year begins (or, if applicable, a reasonable period before becoming an Eligible Employee), written notice of his rights and obligations under the Plan sufficiently accurate and comprehensive to appraise him of such rights and obligations and written in a manner calculated to be understood by the average Eligible Employee.

Notwithstanding that the Plan is intended to be a “safe harbor” 401(k) plan with respect to Employee Pre-Tax Contributions, the provisions of the following sentence shall be applicable to Eligible Employees during such period as they are able to make Employee Pre-Tax Contributions but are not eligible to receive Employer Matching Contributions. The Plan shall satisfy the ADP Test with respect to such Participants, using the current year testing method.

4. Section 3.9 of the Plan (“Code Section 401(m) Average Contribution Percentage Test”) is amended in its entirety to read as follows:

3.9 Average Contribution Percentage Test Safe Harbor

The Plan is intended to satisfy Code Section 401(m)(2) (the “ACP Test”) since: (1)(A) the rate of Employer Matching Contributions does not increase as a Participant’s rate of Employee Pre-Tax Contributions increases, (B) the aggregate amount of Employer Matching Contributions at each rate of Employee Pre-Tax Contributions is at least equal to the aggregate amount of Employer Matching Contributions which would be made if Employer Matching Contributions were made on the basis of the percentages described in Code Section 401(k)(12)(B)(i), and (C) the rate of Employer Matching Contributions with respect to any Employee Pre-Tax Contributions of a Highly Compensated Employee at any rate of Employee Pre-Tax Contributions is not greater than that with respect to an Employee who is not a Highly Compensated Employee; (2) the Plan Administrator provides each Eligible Employee, within a reasonable period before the Plan Year begins (or, if applicable, a reasonable period before becoming eligible for Employer Matching Contributions), written notice of his rights and obligations under the Plan sufficiently accurate and comprehensive to appraise him of such rights and obligations and written in a manner calculated to be understood by the average Eligible Employee; and (3) Employer Matching Contributions on behalf of a Participant are not made with respect to his Employee Pre-Tax Contributions in excess of 6% of his Deferral Compensation.

2

Exhibit 10.1

As evidence of its adoption of this Amendment, Quest Diagnostics Incorporated has caused this Amendment to be executed by its Senior Vice President and Chief Human Resources Officer on this 22^nd day of September, 2020.

QUEST DIAGNOSTICS INCORPORATED

By: /s/ Cecilia McKenney

Cecilia McKenney

SVP and Chief Human Resources Officer

3

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen H. Rusckowski, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 23, 2020

By	/s/ Stephen H. Rusckowski
	Stephen H. Rusckowski
	Chairman, Chief Executive Officer and
	President

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark J. Guinan, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 23, 2020

By	/s/ Mark J. Guinan
	Mark J. Guinan
	Executive Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350, the undersigned certifies that, to the best of my knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2020 of Quest Diagnostics Incorporated, as being filed with the Securities and Exchange Commission concurrently herewith, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m or 78o(d)) and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Quest Diagnostics Incorporated.

Dated:	October 23, 2020	/s/ Stephen H. Rusckowski
		Stephen H. Rusckowski
		Chairman, Chief Executive Officer and
		President

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350, the undersigned certifies that, to the best of my knowledge, the Quarterly Report on Form 10-Q for the period ended September 30, 2020 of Quest Diagnostics Incorporated, as being filed with the Securities and Exchange Commission concurrently herewith, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m or 78o(d)) and that the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Quest Diagnostics Incorporated.

Dated:	October 23, 2020	/s/ Mark J. Guinan
		Mark J. Guinan
		Executive Vice President and
		Chief Financial Officer

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Cover Page - shares	9 Months Ended
	Sep. 30, 2020	Oct. 15, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-12215
Entity Registrant Name	Quest Diagnostics Inc
Entity Central Index Key	0001022079
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	16-1387862
Entity Address, Address Line One	500 Plaza Drive
Entity Address, City or Town	Secaucus,
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07094
City Area Code	(973)
Local Phone Number	520-2700
Title of 12(b) Security	Common Stock, $0.01 Par Value
Trading Symbol	DGX
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		134,765,984

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Net revenues	$ 2,786	$ 1,956	$ 6,435	$ 5,800
Operating costs and expenses and other operating income:
Cost of services	1,580	1,264	4,071	3,773
Selling, general and administrative	396	362	1,103	1,108
Amortization of intangible assets	27	23	77	72
Other operating expense (income), net	65	(6)	8	(21)
Total operating costs and expenses, net	2,068	1,643	5,259	4,932
Operating income	718	313	1,176	868
Other income (expense):
Interest expense, net	(42)	(44)	(124)	(133)
Other income, net	77	1	74	13
Total non-operating income (expense), net	35	(43)	(50)	(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753	270	1,126	748
Income tax expense	(177)	(62)	(269)	(175)
Equity in earnings of equity method investees, net of taxes	15	18	33	48
Income (loss) from continuing operations	591	226	890	621
Income from discontinued operations, net of taxes	0	0	0	20
Net income	591	226	890	641
Less: Net income attributable to noncontrolling interests	23	11	38	36
Net income attributable to Quest Diagnostics	568	215	852	605
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	568	215	852	585
Income from discontinued operations, net of taxes	0	0	0	20
Net income attributable to Quest Diagnostics	$ 568	$ 215	$ 852	$ 605
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations (in dollars per share)	$ 4.20	$ 1.59	$ 6.33	$ 4.33
Income from discontinued operations (in dollars per share)	0	0	0	0.15
Net income (in dollars per share)	4.20	1.59	6.33	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders - diluted:
Income from continuing operations (in dollars per share)	4.14	1.56	6.25	4.27
Income from discontinued operations (in dollars per share)	0	0	0	0.15
Net income (in dollars per share)	$ 4.14	$ 1.56	$ 6.25	$ 4.42
Weighted average common shares outstanding:
Basic (in Shares)	135	135	134	135
Diluted (in Shares)	137	137	136	136

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 591	$ 226	$ 890	$ 641
Other comprehensive income (loss):
Foreign currency translation adjustment	10	(6)	(6)	(6)
Net change in available-for-sale debt securities, net of taxes	0	8	0	8
Net deferred gain on cash flow hedges, net of taxes	3	1	3	2
Other comprehensive income (loss)	13	3	(3)	4
Comprehensive income	604	229	887	645
Less: Comprehensive income attributable to noncontrolling interests	23	11	38	36
Comprehensive income attributable to Quest Diagnostics	$ 581	$ 218	$ 849	$ 609

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents	$ 1,605	$ 1,192
Accounts receivable, net of allowance for credit losses of $27 and $15 as of September 30, 2020 and December 31, 2019, respectively	1,421	1,063
Inventories	205	123
Prepaid expenses and other current assets	117	112
Total current assets	3,348	2,490
Property, plant and equipment, net	1,544	1,453
Operating lease right-of-use assets	535	518
Goodwill	6,880	6,619
Intangible assets, net	1,192	1,121
Investments in equity method investees	480	482
Other assets	164	160
Total assets	14,143	12,843
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses	1,686	1,041
Current portion of long-term debt	555	804
Current portion of long-term operating lease liabilities	148	145
Total current liabilities	2,389	1,990
Long-term debt	4,018	3,966
Long-term operating lease liabilities	428	413
Other liabilities	782	711
Commitments and contingencies
Redeemable noncontrolling interest	80	76
Quest Diagnostics stockholders’ equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2020 and December 31, 2019; 217 shares issued as of both September 30, 2020 and December 31, 2019	2	2
Additional paid-in capital	2,801	2,722
Retained earnings	8,800	8,174
Accumulated other comprehensive loss	(42)	(39)
Treasury stock, at cost; 82 and 84 shares as of September 30, 2020 and December 31, 2019, respectively	(5,161)	(5,218)
Total Quest Diagnostics stockholders' equity	6,400	5,641
Noncontrolling interests	46	46
Total stockholders' equity	6,446	5,687
Total liabilities and stockholders' equity	$ 14,143	$ 12,843

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Millions, $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 27	$ 15
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	600	600
Common stock, shares issued (in shares)	217	217
Treasury stock (in shares)	82	84

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net income	$ 890	$ 641
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	263	247
Provision for credit losses	18	9
Deferred income tax provision	12	15
Stock-based compensation expense	63	44
Other, net	(60)	(44)
Changes in operating assets and liabilities:
Accounts receivable	(355)	(113)
Accounts payable and accrued expenses	514	80
Income taxes payable	95	9
Termination of interest rate swap agreements	40	0
Other assets and liabilities, net	(16)	7
Net cash provided by operating activities	1,464	895
Cash flows from investing activities:
Business acquisitions, net of cash acquired	(329)	(56)
Capital expenditures	(256)	(228)
Increase in investments and other assets	(19)	(27)
Net cash used in investing activities	(604)	(311)
Cash flows from financing activities:
Proceeds from borrowings	749	1,484
Repayments of debt	(1,002)	(1,448)
Purchases of treasury stock	(75)	(153)
Exercise of stock options	144	98
Employee payroll tax withholdings on stock issued under stock-based compensation plans	(13)	(16)
Dividends paid	(222)	(215)
Distributions to noncontrolling interest partners	(34)	(39)
Other financing activities, net	6	4
Net cash used in financing activities	(447)	(285)
Net change in cash and cash equivalents and restricted cash	413	299
Cash and cash equivalents and restricted cash, beginning of period	1,192	135
Cash and cash equivalents and restricted cash, end of period	$ 1,605	$ 434

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Millions, $ in Millions	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock, at Cost	Non-controlling Interests
Balance, shares at Dec. 31, 2018		135.0
Balance, value at Dec. 31, 2018	$ 5,267	$ 2	$ 2,667	$ 7,602	$ (59)	$ (4,996)	$ 51
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	637			605			32
Other comprehensive income (loss), net of taxes	4				4
Dividends declared	(215)			(215)
Distributions to noncontrolling interest partners	(34)						(34)
Issuance of common stock under benefit plans	19		7			12
Stock-based compensation expense	44		43			1
Exercise of stock options, shares		2.0
Exercise of stock options, value	98		4			$ 94
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans	(16)		(16)
Purchases of treasury stock, shares		(2.0)				(1.6)
Purchases of treasury stock, value	(150)					$ (150)
Balance, shares at Sep. 30, 2019		135.0
Balance, value at Sep. 30, 2019	5,654	$ 2	2,705	7,992	(55)	(5,039)	49
Balance, Value at Dec. 31, 2018	77
Redeemable Non-controlling Interest [Abstract]
Net income	4
Distributions to noncontrolling interest partners	(5)
Balance, Value at Sep. 30, 2019	76
Balance, shares at Jun. 30, 2019		135.0
Balance, value at Jun. 30, 2019	5,509	$ 2	2,686	7,849	(58)	(5,020)	50
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	225			215			10
Other comprehensive income (loss), net of taxes	3				3
Dividends declared	(72)			(72)
Distributions to noncontrolling interest partners	(11)						(11)
Issuance of common stock under benefit plans	6		3			3
Stock-based compensation expense	12		12
Exercise of stock options, shares		1.0
Exercise of stock options, value	32		4			28
Purchases of treasury stock, shares		(1.0)
Purchases of treasury stock, value	(50)					(50)
Balance, shares at Sep. 30, 2019		135.0
Balance, value at Sep. 30, 2019	5,654	$ 2	2,705	7,992	(55)	(5,039)	49
Balance, Value at Jun. 30, 2019	76
Redeemable Non-controlling Interest [Abstract]
Net income	1
Distributions to noncontrolling interest partners	(1)
Balance, Value at Sep. 30, 2019	76
Balance, shares at Dec. 31, 2019		133.0
Balance, value at Dec. 31, 2019	5,687	$ 2	2,722	8,174	(39)	(5,218)	46
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	883			852			31
Other comprehensive income (loss), net of taxes	(3)				(3)
Dividends declared	(226)			(226)
Distributions to noncontrolling interest partners	(31)						(31)
Issuance of common stock under benefit plans, shares		1.0
Issuance of common stock under benefit plans	17		7			10
Stock-based compensation expense	63		63
Exercise of stock options, shares		2.0
Exercise of stock options, value	144		22			$ 122
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans	(13)		(13)
Purchases of treasury stock, shares		(1.0)				(0.7)
Purchases of treasury stock, value	(75)					$ (75)
Balance, shares at Sep. 30, 2020		135.0
Balance, value at Sep. 30, 2020	6,446	$ 2	2,801	8,800	(42)	(5,161)	46
Balance, Value at Dec. 31, 2019	76
Redeemable Non-controlling Interest [Abstract]
Net income	7
Distributions to noncontrolling interest partners	(3)
Balance, Value at Sep. 30, 2020	80
Balance, shares at Jun. 30, 2020		134.0
Balance, value at Jun. 30, 2020	5,881	$ 2	2,764	8,307	(55)	(5,187)	50
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	586			568			18
Other comprehensive income (loss), net of taxes	13				13
Dividends declared	(75)			(75)
Distributions to noncontrolling interest partners	(22)						(22)
Issuance of common stock under benefit plans, shares		1.0
Issuance of common stock under benefit plans	4		1			3
Stock-based compensation expense	32		32
Exercise of stock options, value	27		4			23
Balance, shares at Sep. 30, 2020		135.0
Balance, value at Sep. 30, 2020	6,446	$ 2	$ 2,801	$ 8,800	$ (42)	$ (5,161)	$ 46
Balance, Value at Jun. 30, 2020	77
Redeemable Non-controlling Interest [Abstract]
Net income	5
Distributions to noncontrolling interest partners	(2)
Balance, Value at Sep. 30, 2020	$ 80

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DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 30, 2020

Description of Business (Abstract)

DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS

    Background

    Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") empower people to take action to improve health outcomes.  The Company uses its extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management.  The Company's diagnostic information services business ("DIS") provides information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The Company provides services to a broad range of customers including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers and accountable care organizations ("ACOs"). The Company offers the broadest access in the United States to diagnostic information services through its nationwide network of laboratories, patient service centers and phlebotomists in physician offices and the Company's connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. The Company is the world's leading provider of diagnostic information services. The Company provides interpretive consultation with one of the largest medical and scientific staffs in the industry and hundreds of M.D.s and Ph.D.s, many of whom are recognized leaders in their fields. The Company's Diagnostic Solutions businesses ("DS") are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Basis of Presentation

    The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2019, but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”).

    The accounting policies of the Company are the same as those set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K except for the impact of the adoption of new accounting standards discussed under New Accounting Pronouncements.

    A novel strain of coronavirus (“COVID-19”) continues to spread and severely impact the economy of the United States and other countries around the world. Since March 2020, federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home policies, all of which have had, and the Company believes will continue to have, an impact on the Company’s consolidated results of operations, financial position, and cash flows. Additionally, beginning during the second quarter of 2020, the Company experienced growing demand for COVID-19 molecular and antibody testing services and has expanded its capacity in order to satisfy such demand. As a result, operating results for the three and nine months ended September 30, 2020 may not be indicative of the results that may be expected for the full year.

    Use of Estimates

    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

    Earnings Per Share

    The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and its Amended and Restated Non-Employee Director Long-Term Incentive Plan. Earnings allocable to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.

    New Accounting Pronouncements

    Adoption of New Accounting Standards    

    On January 1, 2020, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") which aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard, which the Company elected to do on a prospective basis, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

    On January 1, 2020, the Company adopted a new accounting standard issued by the FASB that changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The adoption of this new standard, which was done using a modified retrospective transition approach, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. See Note 15 for further details on the Company's allowance for credit losses policy.

    New Accounting Standards to be Adopted

    In March 2020, the FASB issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The pronouncement is effective immediately and can be applied through December 31, 2022. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2020

Earnings Per Share, Basic and Diluted [Abstract]

EARNINGS (LOSS) PER SHARE

EARNINGS PER SHARE

    The computation of basic and diluted earnings per common share was as follows (in millions, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$	568	$	215	$	852	$	585
Income from discontinued operations, net of taxes	—		—		—		20
Net income attributable to Quest Diagnostics’ common stockholders	$	568	$	215	$	852	$	605
Income from continuing operations	$	568	$	215	$	852	$	585
Less: Earnings allocated to participating securities	2		1		3		2
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$	566	$	214	$	849	$	583
Weighted average common shares outstanding – basic	135		135		134		135
Effect of dilutive securities:
Stock options and performance share units	2		2		2		1
Weighted average common shares outstanding – diluted	137		137		136		136
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations	$	4.20	$	1.59	$	6.33	$	4.33
Income from discontinued operations	—		—		—		0.15
Net income	$	4.20	$	1.59	$	6.33	$	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders – diluted:
Income from continuing operations	$	4.14	$	1.56	$	6.25	$	4.27
Income from discontinued operations	—		—		—		0.15
Net income	$	4.14	$	1.56	$	6.25	$	4.42

    The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Stock options	1	2	1	3

    The sum of basic and diluted earnings per share attributable to Quest Diagnostics' common stockholders for the first three quarters of 2020 did not equal the totals for the nine months ended September 30, 2020 due to quarterly fluctuations in the Company's earnings and weighted average common shares outstanding throughout the period as a result of the impact of COVID-19 (see Note 2 for further details) and the temporary cessation of repurchases under the Company's share repurchase program (see Note 10 for further details).

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RESTRUCTURING ACTIVITIES

9 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

RESTRUCTURING ACTIVITIES

RESTRUCTURING ACTIVITIES

    Invigorate Program

    The Company is committed to a program called Invigorate which is designed to reduce its cost structure and improve performance. Invigorate consists of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; service excellence; lab excellence; and revenue services excellence. In addition to these programs, the Company identified key themes to change how it operates including reducing denials and patient concessions; further digitizing the business; standardization and automation; and optimization initiatives in the areas of lab network and patient service center network. The Invigorate program is intended to partially offset reimbursement pressures and labor and benefit cost increases; free up additional resources to invest in science, innovation and other growth initiatives; and enable the Company to improve service quality and operating profitability.

    Restructuring Charges

    The following table provides a summary of the Company's pre-tax restructuring charges for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee separation costs	$	6	$	—	$	13	$	(3)

    The restructuring charges incurred for the three and nine months ended September 30, 2020 were primarily associated with various workforce reduction initiatives as the Company continued to simplify and restructure its organization. The $6 million of restructuring charges incurred during the three months ended September 30, 2020 were recorded in cost of services. Of the total restructuring charges incurred during the nine months ended September 30, 2020, $9 million and $4 million were recorded in cost of services and selling, general and administrative expenses, respectively.

    The restructuring activity recorded in the nine months ended September 30, 2019 represents a release of the liability relating to restructuring charges recorded in prior periods, which were determined to no longer be required. Of the total restructuring release recorded in the nine months ended September 30, 2019, $(1) million and $(2) million were recorded in cost of services and selling, general and administrative expenses, respectively.

    Charges for all periods presented were primarily recorded in the Company's DIS business.    

    The restructuring liability as of both September 30, 2020 and December 31, 2019, which is included in accounts payable and accrued expenses, was $9 million.

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BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2020

Business Combinations [Abstract]

BUSINESS ACQUISITIONS

BUSINESS ACQUISITIONS

    On January 21, 2020, the Company completed its acquisition of Blueprint Genetics Oy ("Blueprint Genetics"), in an all cash transaction for $108 million, net of $3 million cash acquired. Blueprint Genetics is a leading specialty genetic testing company with deep expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics. Through the acquisition, the Company acquired all of Blueprint Genetics' operations. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed primarily consist of $77 million of goodwill (none of which is tax-deductible), $43 million of intangible assets, an $11 million deferred tax liability, and $2 million of property, plant and equipment and working capital. The intangible assets primarily consist of technology and customer-related assets which are being amortized over a useful life of 10 years and 15 years, respectively.

    On April 6, 2020, the Company completed its acquisition of select assets which constitute substantially all of the operations of Memorial Hermann Diagnostic Laboratories, the outreach laboratory division of Memorial Hermann Health System ("Memorial Hermann"), in an all cash transaction for $120 million. Memorial Hermann is a not-for-profit health system in Southeast Texas. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired primarily consist of $27 million of customer-related intangible assets and $93 million of tax-deductible goodwill. The intangible assets are being amortized over a useful life of 15 years.

    On August 1, 2020, the Company completed its acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") from its joint venture partners in an all cash transaction for $93 million, net of $18 million cash acquired. The final consideration is subject to post closing adjustments related to working capital. MACL is the largest independent clinical laboratory provider in Indiana. Prior to the acquisition, the Company accounted for its 44% interest in MACL as an equity method investment, which was remeasured to its fair value of $87 million on the acquisition date, resulting in a gain of $70 million that was recognized in other income, net in the consolidated statements of operations. The fair value of the previously held equity interest was determined using a discounted cash flow analysis that takes into account, among other items, MACL's expected future cash flows, long-term growth rate (1.5%), and a discount rate commensurate with economic risk (7.5%). Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed consist of $84 million of goodwill (of which $47 million is tax-deductible), $74 million of intangible assets, $11 million of working capital and $11 million of property, plant and equipment. The intangible assets consist of customer-related assets which are being amortized over a useful life of 15 years. As a result of the acquisition, MACL became a wholly owned subsidiary of the Company.

    The acquisitions were accounted for under the acquisition method of accounting. As such, the assets acquired and liabilities assumed were recorded based on their estimated fair values as of the closing date. Supplemental pro forma combined financial information has not been presented as the impact of the acquisitions is not material to the Company's consolidated financial statements. The goodwill recorded primarily includes the expected synergies resulting from combining the operations of the acquired entities with those of the Company and the value associated with an assembled workforce and other intangible assets that do not qualify for separate recognition. All of the goodwill acquired in connection with these acquisitions has been allocated to the Company's DIS business. For further details regarding business segment information, see Note 13.

    For details regarding the Company's 2019 acquisitions, see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

    Assets and Liabilities Measured at Fair Value on a Recurring Basis

    The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:

			Basis of Fair Value Measurements
			Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2020	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	60	$	60	$	—	$	—
Cash surrender value of life insurance policies	45		—		45		—
Available-for-sale debt securities	12		—		—		12
Total	$	117	$	60	$	45	$	12
Liabilities:
Deferred compensation liabilities	$	114	$	—	$	114	$	—
Redeemable noncontrolling interest	$	80	$	—	$	—	$	80

			Basis of Fair Value Measurements
December 31, 2019	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	59	$	59	$	—	$	—
Cash surrender value of life insurance policies	43		—		43		—
Available-for-sale debt securities	12		—		—		12
Total	$	114	$	59	$	43	$	12
Liabilities:
Deferred compensation liabilities	$	110	$	—	$	110	$	—
Fixed-to-variable interest rate swaps	28		—		28		—
Contingent consideration	7		—		—		7
Total	$	145	$	—	$	138	$	7
Redeemable noncontrolling interest	$	76	$	—	$	—	$	76

    A detailed description regarding the Company's fair value measurements is contained in Note 7 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.    

    The Company offers certain employees the opportunity to participate in a non-qualified supplemental deferred compensation plan. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. The trading securities are classified within Level 1 of the fair value hierarchy because the changes in the fair value of these securities are measured using quoted prices in active markets based on the market price per unit multiplied by the number of units held, exclusive of any transaction costs. A

corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the trading securities.

    The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments. Deferrals under the plan currently may only be made by participants who made deferrals under the plan in 2017.

    The Company's available-for-sale debt securities are measured at fair value using discounted cash flows. These fair value measurements are classified within Level 3 of the fair value hierarchy as the fair value is based on significant inputs that are not observable. Significant inputs include cash flows projections and a discount rate.

    The fair value measurements of the Company's fixed-to-variable interest rate swaps, which were terminated during April 2020 (see Note 9), were classified within Level 2 of the fair value hierarchy and were based on model-derived valuations as of a given date in which all significant inputs are observable in active markets, including certain financial information and certain assumptions regarding past, present and future market conditions.

    In connection with previous business acquisitions, the Company has contingent consideration liabilities that are to be paid based on the achievement of certain testing volume or revenue benchmarks. As of September 30, 2020, the fair value of these contingent consideration liabilities was immaterial. These contingent consideration liabilities are measured at fair value using an option-pricing method and are classified within Level 3 of the fair value hierarchy as the fair value is determined based on significant inputs that are not observable. Significant inputs include management’s estimate of volume or revenue and other market inputs including comparable company revenue volatility and a discount rate. A summary of the significant inputs as of September 30, 2020 is as follows:

Business Acquisition	Benchmark	Comparable Company Revenue Volatility	Discount rate	Maximum Contingent Consideration Payment
ReproSource, Inc.	Revenue	8.5%	6.5%	$	10

    For further details regarding the Company's acquisitions, see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K and Note 5 to the interim unaudited consolidated financial statements.

    The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3 of the fair value hierarchy):

	Contingent Consideration
Balance, December 31, 2019	$	7
Settlements	(6)
Total (gains)/losses included in earnings - realized/unrealized	(1)
Balance, September 30, 2020	$	—

    The $1 million net gain included in earnings associated with the change in the fair value of contingent consideration for the nine months ended September 30, 2020 is reported in other operating expense (income), net.

    In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of September 30, 2020, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long term growth rates, and a discount rate commensurate with economic risk.

    The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of September 30, 2020 and December 31, 2019, the fair value of the Company’s debt was estimated at $5.2 billion and $5.1 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.

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GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

    The changes in goodwill for the nine months ended September 30, 2020 and for the year ended December 31, 2019 were as follows:

	September 30, 2020		December 31, 2019
Balance, beginning of period	$	6,619	$	6,563
Goodwill acquired during the period	258		43
Adjustments to goodwill	3		13
Balance, end of period	$	6,880	$	6,619

    Principally all of the Company’s goodwill as of September 30, 2020 and December 31, 2019 was associated with its DIS business.

    For the nine months ended September 30, 2020, goodwill acquired during the period was primarily associated with the acquisitions of Blueprint Genetics, Memorial Hermann and MACL (see Note 5) and adjustments to goodwill primarily related to foreign currency translation. For the year ended December 31, 2019, goodwill acquired was principally associated with the acquisitions of certain assets of the clinical laboratory services business of Boyce & Bynum Pathology Laboratories, P.C. and adjustments to goodwill primarily related to the finalization of the purchase price allocation for the acquisition of the U.S. laboratory services business of Oxford Immunotec, Inc. (see Note 6 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K).     

    Intangible assets at September 30, 2020 and December 31, 2019 consisted of the following:

	Weighted Average Amortization Period (in years)	September 30, 2020						December 31, 2019
		Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizing intangible assets:
Customer-related	17	$	1,479	$	(617)	$	862	$	1,367	$	(556)	$	811
Non-compete agreements	9	3		(2)		1		3		(2)		1
Technology	15	140		(63)		77		104		(56)		48
Other	9	110		(94)		16		110		(85)		25
Total	17	1,732		(776)		956		1,584		(699)		885
Intangible assets not subject to amortization:
Trade names		235		—		235		235		—		235
Other		1		—		1		1		—		1
Total intangible assets		$	1,968	$	(776)	$	1,192	$	1,820	$	(699)	$	1,121

    The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2020 is as follows:

Year Ending December 31,
Remainder of 2020	$	27
2021	101
2022	98
2023	96
2024	93
2025	91
Thereafter	450
Total	$	956

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DEBT

9 Months Ended

Sep. 30, 2020

Debt Instruments [Abstract]

DEBT

DEBT

    Long-term debt (including finance lease obligations) as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
4.75% Senior Notes due January 2020	$	—	$	500
2.50% Senior Notes due March 2020	—		300
4.70% Senior Notes due April 2021	551		554
4.25% Senior Notes due April 2024	317		308
3.50% Senior Notes due March 2025	623		593
3.45% Senior Notes due June 2026	513		490
4.20% Senior Notes due June 2029	499		499
2.95% Senior Notes due June 2030	798		798
2.80% Senior Notes due June 2031	549		—
6.95% Senior Notes due July 2037	175		175
5.75% Senior Notes due January 2040	245		245
4.70% Senior Notes due March 2045	300		300
Other	32		34
Debt issuance costs	(29)		(26)
Total long-term debt	4,573		4,770
Less: Current portion of long-term debt	555		804
Total long-term debt, net of current portion	$	4,018	$	3,966

    Retirement of Debt

    During January 2020, the Company redeemed in full the outstanding indebtedness under the Company's senior notes due January 2020 and senior notes due March 2020 using proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand. For the nine months ended September 30, 2020, the Company recorded a loss on retirement of debt, principally comprised of premiums paid, of $1 million in other income, net.

    May 2020 Senior Notes Offering

    During May 2020, the Company completed a senior notes offering, consisting of $550 million aggregate principal amount of 2.80% senior notes due June 2031 (the "2031 Senior Notes"), which were issued at an original issue discount of $1 million. The 2031 Senior Notes are unsecured obligations of the Company that rank equally with the Company's other senior unsecured obligations. The 2031 Senior Notes do not have a sinking fund requirement. The Company incurred $5 million of debt issuance costs associated with the 2031 Senior Notes, which are included as a reduction to the carrying amount of long-term debt and which are being amortized over the term of the related debt.

    During October 2020, the Company issued a redemption notice to the holders of the Company's $550 million aggregate principal amount of 4.70% senior notes due April 2021. The Company intends to use the net proceeds from the 2031 Senior Notes, along with cash on hand, to satisfy the redemption. See Note 18 for further details.

    Credit Facilities

    As of September 30, 2020, the Company had cash and cash equivalents on hand of $1,605 million and had $1.3 billion of borrowing capacity available under its existing credit facilities, including $529 million available under its secured receivables credit facility and $750 million available under its senior unsecured revolving credit facility. There were no outstanding borrowings under the Company's existing credit facilities as of September 30, 2020. The secured receivables credit facility was amended in October 2020 in order to extend the maturity dates for each underlying commitment by one year, while maintaining

the borrowing capacity at $600 million. See Note 18 for further details. The senior unsecured revolving credit facility matures in March 2023. For further details regarding the credit facilities, see Note 13 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.

    The secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. The Company's senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. On April 30, 2020, the Company entered into an amendment to the senior unsecured revolving credit facility in order to provide for increased flexibility. Pursuant to the amendment, the leverage ratio covenant (as defined in the senior unsecured revolving credit facility) was increased as follows:

As of:	Applicable Covenant:
September 30, 2020	no more than 5.5 times EBITDA
December 31, 2020	no more than 6.5 times EBITDA
March 31, 2021	no more than 6.25 times EBITDA
June 30, 2021	no more than 4.5 times EBITDA

    Thereafter, the leverage ratio covenant reverts to no more than 3.5 times EBITDA. During the period that the increased covenant applies, which period may be terminated early by the Company provided that it is in compliance with the historical 3.5 times EBITDA leverage ratio, the amended credit agreement contains certain additional limitations and restrictions including, but not limited to, repurchases of the Company's common stock, the amount of funds that can be used on business acquisitions, the incurrence of secured indebtedness and the payment of dividends. As of September 30, 2020, the Company was in compliance with all such applicable financial covenants. Interest on the amended senior unsecured revolving credit facility is subject to a pricing schedule that can fluctuate based on changes in the Company's credit ratings and its leverage ratio.

    During the nine months ended September 30, 2020, the Company borrowed $100 million under its secured receivables credit facility and $100 million under its senior unsecured revolving credit facility, both of which were repaid prior to September 30, 2020.

    Maturities of Long-Term Debt    

    As of September 30, 2020, long-term debt matures as follows:

Year Ending December 31,
Remainder of 2020	$	1
2021	553
2022	3
2023	2
2024	302
Thereafter	3,696
Total maturities of long-term debt	4,557
Unamortized discount	(11)
Debt issuance costs	(29)
Fair value basis adjustments attributable to hedged debt	56
Total long-term debt	4,573
Current portion of long-term debt	555
Total long-term debt, net of current portion	$	4,018

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FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS

    The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates and, from time to time, foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, treasury lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral.

    Interest Rate Risk

    The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company enters into interest rate swaps.

    Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense.

    Interest Rate Derivatives – Cash Flow Hedges

    From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.

    During March 2020, the Company entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $25 million. Additionally, during May 2020, the Company entered into interest rate lock agreements with several financial institutions for a total notional amount of $275 million. The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of the Company's interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten-year period related to an anticipated issuance of debt and were accounted for as cash flow hedges. In connection with the issuance of the 2031 Senior Notes (see Note 8), these agreements were settled and the Company received net proceeds of $1 million. The net gain is deferred in stockholders' equity, net of taxes, as a component of accumulated other comprehensive loss, and is being amortized as an adjustment to interest expense, net over a ten-year period.

    The total net loss, net of taxes, recognized in accumulated other comprehensive loss, related to the Company's cash flow hedges was $1 million and $4 million as of September 30, 2020 and December 31, 2019, respectively. The net amount of deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense, net within the next twelve months is $1 million.

    Interest Rate Derivatives – Fair Value Hedges

    As of December 31, 2019, the Company had various fixed-to-variable interest rate swap agreements outstanding with an aggregate notional amount of $1.2 billion, which were entered into in order to convert a portion of the Company's long-term debt into variable interest rate debt. In April 2020, the Company terminated these existing fixed-to-variable interest rate swap agreements and received proceeds of $40 million. Such amount was reflected as a basis adjustment to the hedged debt instruments and is being amortized as a reduction of interest expense, net over their remaining terms.

    As of September 30, 2020 and December 31, 2019, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:

	Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)		Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification	September 30, 2020		September 30, 2020		December 31, 2019		December 31, 2019
Long-term debt	$	—	$	56	$	1,186	$	(3)

(a) As of September 30, 2020, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships. As of December 31, 2019, the balance includes $25 million of remaining unamortized hedging adjustments on discontinued relationships.

    The following table presents the effect of fair value hedge accounting on the Company's consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	Other income, net		Other income, net		Other income, net		Other income, net
Total for line item in which the effects of fair value hedges are recorded	$	77	$	1	$	74	$	13
Gain (loss) on fair value hedging relationships:
Hedged items (Long-term debt)	$	—	$	(20)	$	(68)	$	(76)
Derivatives designated as hedging instruments	$	—	$	20	$	68	$	76

    A detailed description regarding the Company's use of derivative financial instruments is contained in Note 15 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.

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STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

    Stockholders' Equity    

Changes in Accumulated Other Comprehensive Loss by Component

Comprehensive income (loss) includes:

•Foreign currency translation adjustments;

•Net deferred gain on cash flow hedges, which represents deferred gains/losses, net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 9); and

•Net change on available-for-sale debt securities, which represents unrealized holding gains, net of taxes on available-for-sale debt securities.

    For the three and nine months ended September 30, 2020 and 2019, the tax effects related to the deferred gains/losses on cash flow hedges and net change on available-for-sale debt securities were not material. Foreign currency translation adjustments related to indefinite investments in non-U.S. subsidiaries are not adjusted for income taxes.

Dividend Program

    During each of the first three quarters of 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.56 per common share. During each of the four quarters of 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.53 per common share.

Share Repurchase Program

    As of September 30, 2020, $1.2 billion remained available under the Company’s share repurchase authorizations; however, in April 2020, the Company temporarily suspended additional share repurchases under the existing authorization. The share repurchase authorization has no set expiration or termination date.

Share Repurchases

    For the nine months ended September 30, 2020, the Company repurchased 0.7 million shares of its common stock for $75 million.

    For the nine months ended September 30, 2019, the Company repurchased 1.6 million shares of its common stock for $150 million.

Shares Reissued from Treasury Stock

    For the nine months ended September 30, 2020 and 2019, the Company reissued 2.1 million shares and 1.8 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan and stock option plans. For details regarding the Company's stock ownership and compensation plans, see Note 17 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K.    

    Redeemable Noncontrolling Interest

    In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. As of September 30, 2020 and December 31, 2019, the redeemable noncontrolling interest was presented at its fair value. For further information regarding the fair value of the redeemable noncontrolling interest, see Note 6.

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SUPPLEMENTAL CASH FLOW & OTHER DATA

9 Months Ended

Sep. 30, 2020

Supplemental Cash Flow Elements [Abstract]

SUPPLEMENTAL CASH FLOW & OTHER DATA

SUPPLEMENTAL CASH FLOW AND OTHER DATA

    Supplemental cash flow and other data for the three and nine months ended September 30, 2020 and 2019 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Depreciation expense	$	62	$	59	$	186	$	175
Amortization expense	27		23		77		72
Depreciation and amortization expense	$	89	$	82	$	263	$	247
Interest expense	$	(42)	$	(45)	$	(126)	$	(136)
Interest income	—		1		2		3
Interest expense, net	$	(42)	$	(44)	$	(124)	$	(133)
Interest paid	$	33	$	58	$	136	$	149
Income taxes paid	$	148	$	65	$	168	$	148
Accounts payable associated with capital expenditures	$	55	$	24	$	55	$	24
Dividends payable	$	76	$	72	$	76	$	72
Businesses acquired:
Fair value of assets acquired	$	126	$	—	$	377	$	61
Fair value of liabilities assumed	(9)		—		(29)		—
Fair value of net assets acquired	117		—		348		61
Merger consideration receivable/payable	2		—		2		(5)
Cash paid for business acquisitions	119		—		350		56
Less: Cash acquired	18		—		21		—
Business acquisitions, net of cash acquired	$	101	$	—	$	329	$	56
Leases:
Leased assets obtained in exchange for new operating lease liabilities	$	40	$	38	$	119	$	116
Leased assets obtained in exchange for new finance lease liabilities	$	—	$	1	$	—	$	1

    In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. The CARES Act also includes a number of benefits that are applicable to the Company and other healthcare providers including, but not limited to, the appropriation of $100 billion to health care providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic.

    In April 2020 and August 2020, the Company received approximately $65 million and $73 million, respectively, of funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act. In October 2020, the Company announced that it plans to return the entire $138 million of funds received.

    The Company accounts for the receipt of the funds under a gain contingency model. Accordingly, such amounts are recognized when the funds are received and the Company has determined that it has satisfied the associated terms and conditions. During the three months ended June 30, 2020, based on the terms and conditions that were in effect at such time, the Company concluded that it had satisfied such terms and conditions for the $65 million of funds that were received in April 2020 and, therefore, the Company recognized such amount in other operating expense (income), net during the second quarter. During the three months ended September 30, 2020, the Company reversed the $65 million of funds that had previously been recognized in other operating expense (income), net. As of September 30, 2020, no amounts are recorded in the Company's year-to-date consolidated statement of operations and the entire $138 million of funds that the Company intends to return are recorded in accounts payable and accrued expenses on the Company’s consolidated balance sheet. For the nine months ended September 30, 2020, net cash provided by operating activities included the $138 million that the Company received from the funds that were distributed to healthcare providers under the CARES Act.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

    Letters of Credit

    The Company can issue letters of credit totaling $100 million under its secured receivables credit facility and $150 million under its senior unsecured revolving credit facility. For further discussion regarding the Company's secured receivables credit facility and senior unsecured revolving credit facility, see Note 13 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K and Note 8 to the interim unaudited consolidated financial statements.    

    In support of its risk management program, to ensure the Company’s performance or payment to third parties, $71 million in letters of credit under the secured receivables credit facility were outstanding as of September 30, 2020. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.

    Contingent Lease Obligations

    The Company remains subject to contingent obligations under certain real estate leases, including leases that were entered into by certain predecessor companies of a subsidiary prior to the Company's acquisition of the subsidiary. No liability has been recorded for any of these potential contingent obligations. For further details, see Note 18 to the audited consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K.

    Certain Legal Matters

    The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.

401(k) Plan Lawsuit

    In June 2020, a putative class action lawsuit, House Johnson v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In July 2020, a putative class action lawsuit, Rice, et. al v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey. The plaintiffs in the Rice case named the same defendants as those named in the House Johnson case and alleged substantially similar claims to those made in the House Johnson matter. In October 2020, the court consolidated the two lawsuits and plaintiffs filed a consolidated amended complaint. The Company plans to vigorously defend this matter.

AMCA Data Security Incident.

    On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws.

    Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint.

    In addition, certain federal and state governmental authorities are investigating, or otherwise seeking information and/or documents from the Company related to the AMCA Data Security Incident and related matters, including the Office for Civil Rights of the U.S. Department of Health and Human Services, Attorneys General offices from numerous states and the District of Columbia, and certain U.S. senators.

    Other Legal Matters

    In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.

    The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

    The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing practices based on the qui tam provisions of the Civil False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistle blowers" as to which the Company cannot determine the extent of any potential liability.

    Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.

    These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of September 30, 2020, the Company does not believe that material losses related to legal matters are probable.

    Reserves for legal matters totaled $1 million as of both September 30, 2020 and December 31, 2019, respectively.

    Reserves for General and Professional Liability Claims

    As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims. Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled $134 million and $132 million as of September 30, 2020 and December 31, 2019, respectively. Management believes that established reserves and present insurance coverage are sufficient to cover currently estimated exposures.

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BUSINESS SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

BUSINESS SEGMENT INFORMATION

BUSINESS SEGMENT INFORMATION

    The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), assesses performance and allocates resources across the organization. The DIS business provides diagnostic information services to a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers and ACOs. The Company is the world's leading provider of diagnostic information services, which includes providing information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The DIS business accounted for greater than 95% of net revenues in 2020 and 2019.

    All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

    As of September 30, 2020, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States.

    The following table is a summary of segment information for the three and nine months ended September 30, 2020 and 2019. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues:
DIS business	$	2,709	$	1,877	$	6,217	$	5,561
All other operating segments	77		79		218		239
Total net revenues	$	2,786	$	1,956	$	6,435	$	5,800
Operating earnings (loss):
DIS business	$	840	$	345	$	1,325	$	963
All other operating segments	16		10		29		31
General corporate activities	(138)		(42)		(178)		(126)
Total operating income	718		313		1,176		868
Non-operating income (expense), net	35		(43)		(50)		(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753		270		1,126		748
Income tax expense	(177)		(62)		(269)		(175)
Equity in earnings of equity method investees, net of taxes	15		18		33		48
Income from continuing operations	591		226		890		621
Income from discontinued operations, net of taxes	—		—		—		20
Net income	591		226		890		641
Less: Net income attributable to noncontrolling interests	23		11		38		36
Net income attributable to Quest Diagnostics	$	568	$	215	$	852	$	605

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RELATED PARTIES

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTIES

    The Company's equity method investees primarily consist of its clinical trials central laboratory services joint venture and its diagnostic information services joint ventures, which are accounted for under the equity method of accounting. During the three months ended September 30, 2020 and 2019, the Company recognized net revenues of $10 million and $8 million, respectively, associated with diagnostic information services provided to its equity method investees. During the nine months ended September 30, 2020 and 2019, the Company recognized net revenues of $25 million and $26 million, respectively, associated with diagnostic information services provided to its equity method investees. As of both September 30, 2020 and December 31, 2019, there was $4 million of accounts receivable from equity method investees related to such services. During both the three months ended September 30, 2020 and 2019, the Company recognized net revenues of $1 million associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. During the nine months ended September 30, 2020 and 2019, the Company recognized net revenues of $2 million and $6 million, respectively, associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. As of December 31, 2019, there was $4 million of receivables from the noncontrolling interest partner included in accounts receivable and other assets related to such services.

    During both the three months ended September 30, 2020 and 2019, the Company recognized income of $4 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. During both the nine months ended September 30, 2020 and 2019, the Company recognized income of $12 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. As of September 30, 2020 and December 31, 2019, there was $2 million and $1 million, respectively, of other receivables from equity method investees included in prepaid expenses and other current assets related to these service agreements and other transition related items. In addition, accounts payable and accrued expenses as of September 30, 2020 and December 31, 2019 included $1 million and $2 million, respectively, due to equity method investees.

    During the nine months ended September 30, 2020 and 2019, the Company received dividends from its equity method investees of $34 million and $27 million, respectively.

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REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE RECOGITION AND ALLOWANCE FOR CREDIT LOSSES

REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES

    DIS

    Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three and nine months ended September 30, 2020 and 2019 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process, when results are reported, or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, using the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials and price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.

    DS

    The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered.

    The approximate percentage of net revenue by type of customer was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Healthcare insurers:
Fee-for-service	33	%	32	%	33	%	33	%
Capitated	2		3		3		3
Total healthcare insurers	35		35		36		36
Government payers	10		15		12		15
Client payers	40		33		37		32
Patients	12		13		12		13
Total DIS	97		96		97		96
DS	3		4		3		4
Net revenues	100	%	100	%	100	%	100	%

    The approximate percentage of net accounts receivable by type of customer was as follows:

	September 30, 2020		December 31, 2019
Healthcare Insurers	30	%	22	%
Government Payers	6		11
Client Payers	48		42
Patients (including coinsurance and deductible responsibilities)	12		20
Total DIS	96		95
DS	4		5
Net accounts receivable	100	%	100	%

    Allowance for Credit Losses Policy

    When estimating its allowance for credit losses, the Company pools its trade receivables based on the following customer types: healthcare insurers, government payers, client payers and patients. 

    For the healthcare insurers and government payers, collection of the Company’s net revenues is normally a function of providing the complete and correct billing information within the various filing deadlines, and provided that the Company has billed the payers accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. 

    Client payers primarily include physicians, hospitals, IDNs, ACOs, employers, other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules.  Credit risk and ability to pay are more of a consideration for these payers. 

    With respect to patients, implicit price concessions, which represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, are recognized as a reduction of revenue.  Estimates of implicit price concessions consider historical collection experience (including the period the receivables have been outstanding) and other factors including current market conditions.

    The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period that the receivables have been outstanding.  To the extent that any individual payers are identified that have deteriorated in credit quality, the Company removes the customers from their respective pools and establishes allowances based on the individual risk characteristics of such customers.

    Although the Company believes that its estimates for contractual allowances and patient price concessions as well as its allowance for credit losses are appropriate, it is possible that the Company will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic.

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TAXES ON INCOME

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

TAXES ON INCOME

TAXES ON INCOME

    For the three months ended September 30, 2020 and 2019, the effective income tax rate was 23.7% and 22.9%, respectively. The effective income tax rate for the three months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $3 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the three months ended September 30, 2019 benefited from a $6 million income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards; and $3 million of excess tax benefits associated with stock-based compensation arrangements.

    For the nine months ended September 30, 2020 and 2019, the effective income tax rate was 23.9% and 23.4%, respectively. The effective income tax rate for the nine months ended September 30, 2020, benefited from a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $15 million of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the nine months ended September 30, 2019 benefited from $11 million of excess tax benefits associated with stock-based compensation arrangements; and a $10 million income tax benefit due to the release of valuation allowances associated with net operating loss carryforwards.

    The effective income tax rate associated with the $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value was 11.8% due to a permanent difference in the financial reporting and tax basis of goodwill.

    For the three and nine months ended September 30, 2020, the Company utilized the most likely estimate of its annual income before taxes to determine the annual effective income tax rate for 2020. As a result of uncertainty associated with the impact of the COVID-19 pandemic, it is possible that the Company will experience variability in the annual projections and, as a result, the annual effective income tax rate.

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DISCONTINUED OPERATIONS	9 Months Ended
	Sep. 30, 2020
Discontinued Operations and Disposal Groups [Abstract]
DISCONTINUED OPERATIONS	DISCONTINUED OPERATIONS    During the third quarter of 2006, the Company completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was reported as a discontinued operation for the nine months ended September 30, 2019. Discontinued operations, net of taxes, for the nine months ended September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID. In addition, net cash provided by operating activities in the consolidated statement of cash flows for the nine months ended September 30, 2019 included a $28 million refund from the taxing authorities related to discontinued operations.

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SUBSEQUENT EVENT

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

    During October 2020, the Company amended its $600 million secured receivables credit facility in order to extend the maturity dates for each underlying commitment by one year while maintaining the borrowing capacity under the facility at $600 million. Under the secured receivables credit facility, the Company can borrow against a $250 million loan commitment maturing October 2021 and a $250 million loan commitment maturing October 2022. Additionally, the Company can issue up to $100 million of letters of credit through October 2022. Borrowings under the facility are collateralized by certain domestic receivables. Interest on borrowings under the facility is based on either commercial paper rates for highly-rated issuers or LIBOR, plus a spread of 0.825% to 0.95%.

    In October 2020, the Company issued a redemption notice to the holders of the Company's $550 million aggregate principal amount of 4.70% senior notes due April 2021, to redeem such notes in November 2020. Upon redemption, the Company will recognize a loss on extinguishment of debt based on the difference between the reacquisition price of the debt and the net carrying amount. The Company will pay a redemption premium in accordance with the requirements of such notes using a treasury rate calculated on the third business day preceding the redemption date.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2019, but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”).

Use Of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings Per Share

The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and its Amended and Restated Non-Employee Director Long-Term Incentive Plan. Earnings allocable to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.

New Accounting Pronouncements

Adoption of New Accounting Standards    

    On January 1, 2020, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") which aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this standard, which the Company elected to do on a prospective basis, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

    On January 1, 2020, the Company adopted a new accounting standard issued by the FASB that changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The adoption of this new standard, which was done using a modified retrospective transition approach, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows. See Note 15 for further details on the Company's allowance for credit losses policy.

    New Accounting Standards to be Adopted

    In March 2020, the FASB issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The pronouncement is effective immediately and can be applied through December 31, 2022. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates and, from time to time, foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, treasury lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral.

    Interest Rate Risk

    The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material. The Company's debt obligations consist of fixed-rate and variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company enters into interest rate swaps.

    Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense.

Allowance for Credit Losses Policy

Allowance for Credit Losses Policy

    When estimating its allowance for credit losses, the Company pools its trade receivables based on the following customer types: healthcare insurers, government payers, client payers and patients. 

    For the healthcare insurers and government payers, collection of the Company’s net revenues is normally a function of providing the complete and correct billing information within the various filing deadlines, and provided that the Company has billed the payers accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk. 

    Client payers primarily include physicians, hospitals, IDNs, ACOs, employers, other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules.  Credit risk and ability to pay are more of a consideration for these payers. 

    With respect to patients, implicit price concessions, which represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, are recognized as a reduction of revenue.  Estimates of implicit price concessions consider historical collection experience (including the period the receivables have been outstanding) and other factors including current market conditions.

    The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period that the receivables have been outstanding.  To the extent that any individual payers are identified that have deteriorated in credit quality, the Company removes the customers from their respective pools and establishes allowances based on the individual risk characteristics of such customers.

    Although the Company believes that its estimates for contractual allowances and patient price concessions as well as its allowance for credit losses are appropriate, it is possible that the Company will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share, Basic and Diluted [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The computation of basic and diluted earnings per common share was as follows (in millions, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$	568	$	215	$	852	$	585
Income from discontinued operations, net of taxes	—		—		—		20
Net income attributable to Quest Diagnostics’ common stockholders	$	568	$	215	$	852	$	605
Income from continuing operations	$	568	$	215	$	852	$	585
Less: Earnings allocated to participating securities	2		1		3		2
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$	566	$	214	$	849	$	583
Weighted average common shares outstanding – basic	135		135		134		135
Effect of dilutive securities:
Stock options and performance share units	2		2		2		1
Weighted average common shares outstanding – diluted	137		137		136		136
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations	$	4.20	$	1.59	$	6.33	$	4.33
Income from discontinued operations	—		—		—		0.15
Net income	$	4.20	$	1.59	$	6.33	$	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders – diluted:
Income from continuing operations	$	4.14	$	1.56	$	6.25	$	4.27
Income from discontinued operations	—		—		—		0.15
Net income	$	4.14	$	1.56	$	6.25	$	4.42

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Stock options	1	2	1	3

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RESTRUCTURING ACTIVITIES (Tables)

9 Months Ended

Sep. 30, 2020

Restructuring and Related Activities [Abstract]

Schedule of Pre-Tax Restructuring and Integration Charges

The following table provides a summary of the Company's pre-tax restructuring charges for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee separation costs	$	6	$	—	$	13	$	(3)

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value, Measurement Inputs

The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:

			Basis of Fair Value Measurements
			Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
September 30, 2020	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	60	$	60	$	—	$	—
Cash surrender value of life insurance policies	45		—		45		—
Available-for-sale debt securities	12		—		—		12
Total	$	117	$	60	$	45	$	12
Liabilities:
Deferred compensation liabilities	$	114	$	—	$	114	$	—
Redeemable noncontrolling interest	$	80	$	—	$	—	$	80

			Basis of Fair Value Measurements
December 31, 2019	Total		Level 1		Level 2		Level 3
Assets:
Trading securities	$	59	$	59	$	—	$	—
Cash surrender value of life insurance policies	43		—		43		—
Available-for-sale debt securities	12		—		—		12
Total	$	114	$	59	$	43	$	12
Liabilities:
Deferred compensation liabilities	$	110	$	—	$	110	$	—
Fixed-to-variable interest rate swaps	28		—		28		—
Contingent consideration	7		—		—		7
Total	$	145	$	—	$	138	$	7
Redeemable noncontrolling interest	$	76	$	—	$	—	$	76

A summary of the significant inputs as of September 30, 2020 is as follows:

Business Acquisition	Benchmark	Comparable Company Revenue Volatility	Discount rate	Maximum Contingent Consideration Payment
ReproSource, Inc.	Revenue	8.5%	6.5%	$	10

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3 of the fair value hierarchy):

	Contingent Consideration
Balance, December 31, 2019	$	7
Settlements	(6)
Total (gains)/losses included in earnings - realized/unrealized	(1)
Balance, September 30, 2020	$	—

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GOODWILL AND INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Goodwill, Net

The changes in goodwill for the nine months ended September 30, 2020 and for the year ended December 31, 2019 were as follows:

	September 30, 2020		December 31, 2019
Balance, beginning of period	$	6,619	$	6,563
Goodwill acquired during the period	258		43
Adjustments to goodwill	3		13
Balance, end of period	$	6,880	$	6,619

Intangible Assets Excluding Goodwill

Intangible assets at September 30, 2020 and December 31, 2019 consisted of the following:

	Weighted Average Amortization Period (in years)	September 30, 2020						December 31, 2019
		Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizing intangible assets:
Customer-related	17	$	1,479	$	(617)	$	862	$	1,367	$	(556)	$	811
Non-compete agreements	9	3		(2)		1		3		(2)		1
Technology	15	140		(63)		77		104		(56)		48
Other	9	110		(94)		16		110		(85)		25
Total	17	1,732		(776)		956		1,584		(699)		885
Intangible assets not subject to amortization:
Trade names		235		—		235		235		—		235
Other		1		—		1		1		—		1
Total intangible assets		$	1,968	$	(776)	$	1,192	$	1,820	$	(699)	$	1,121

Future Amortization Expense Intangible Assets

The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2020 is as follows:

Year Ending December 31,
Remainder of 2020	$	27
2021	101
2022	98
2023	96
2024	93
2025	91
Thereafter	450
Total	$	956

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DEBT (Tables)

9 Months Ended

Sep. 30, 2020

Debt Instruments [Abstract]

Long-term Debt

Long-term debt (including finance lease obligations) as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
4.75% Senior Notes due January 2020	$	—	$	500
2.50% Senior Notes due March 2020	—		300
4.70% Senior Notes due April 2021	551		554
4.25% Senior Notes due April 2024	317		308
3.50% Senior Notes due March 2025	623		593
3.45% Senior Notes due June 2026	513		490
4.20% Senior Notes due June 2029	499		499
2.95% Senior Notes due June 2030	798		798
2.80% Senior Notes due June 2031	549		—
6.95% Senior Notes due July 2037	175		175
5.75% Senior Notes due January 2040	245		245
4.70% Senior Notes due March 2045	300		300
Other	32		34
Debt issuance costs	(29)		(26)
Total long-term debt	4,573		4,770
Less: Current portion of long-term debt	555		804
Total long-term debt, net of current portion	$	4,018	$	3,966

Schedule of Leverage Ratio Covenants

Pursuant to the amendment, the leverage ratio covenant (as defined in the senior unsecured revolving credit facility) was increased as follows:

As of:	Applicable Covenant:
September 30, 2020	no more than 5.5 times EBITDA
December 31, 2020	no more than 6.5 times EBITDA
March 31, 2021	no more than 6.25 times EBITDA
June 30, 2021	no more than 4.5 times EBITDA

Schedule of Maturities of Long-term Debt

As of September 30, 2020, long-term debt matures as follows:

Year Ending December 31,
Remainder of 2020	$	1
2021	553
2022	3
2023	2
2024	302
Thereafter	3,696
Total maturities of long-term debt	4,557
Unamortized discount	(11)
Debt issuance costs	(29)
Fair value basis adjustments attributable to hedged debt	56
Total long-term debt	4,573
Current portion of long-term debt	555
Total long-term debt, net of current portion	$	4,018

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FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Debt Instrument Fair Value Basis Adjustment Attributable to Hedged Debt

As of September 30, 2020 and December 31, 2019, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:

	Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)		Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification	September 30, 2020		September 30, 2020		December 31, 2019		December 31, 2019
Long-term debt	$	—	$	56	$	1,186	$	(3)

(a) As of September 30, 2020, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships. As of December 31, 2019, the balance includes $25 million of remaining unamortized hedging adjustments on discontinued relationships.

Schedule of Fair Value Hedge Accounting on the Statement of Operations

The following table presents the effect of fair value hedge accounting on the Company's consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	Other income, net		Other income, net		Other income, net		Other income, net
Total for line item in which the effects of fair value hedges are recorded	$	77	$	1	$	74	$	13
Gain (loss) on fair value hedging relationships:
Hedged items (Long-term debt)	$	—	$	(20)	$	(68)	$	(76)
Derivatives designated as hedging instruments	$	—	$	20	$	68	$	76

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SUPPLEMENTAL CASH FLOW & OTHER DATA (Tables)

9 Months Ended

Sep. 30, 2020

Supplemental Cash Flow Elements [Abstract]

Supplemental Cash Flow and Other Data

Supplemental cash flow and other data for the three and nine months ended September 30, 2020 and 2019 was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Depreciation expense	$	62	$	59	$	186	$	175
Amortization expense	27		23		77		72
Depreciation and amortization expense	$	89	$	82	$	263	$	247
Interest expense	$	(42)	$	(45)	$	(126)	$	(136)
Interest income	—		1		2		3
Interest expense, net	$	(42)	$	(44)	$	(124)	$	(133)
Interest paid	$	33	$	58	$	136	$	149
Income taxes paid	$	148	$	65	$	168	$	148
Accounts payable associated with capital expenditures	$	55	$	24	$	55	$	24
Dividends payable	$	76	$	72	$	76	$	72
Businesses acquired:
Fair value of assets acquired	$	126	$	—	$	377	$	61
Fair value of liabilities assumed	(9)		—		(29)		—
Fair value of net assets acquired	117		—		348		61
Merger consideration receivable/payable	2		—		2		(5)
Cash paid for business acquisitions	119		—		350		56
Less: Cash acquired	18		—		21		—
Business acquisitions, net of cash acquired	$	101	$	—	$	329	$	56
Leases:
Leased assets obtained in exchange for new operating lease liabilities	$	40	$	38	$	119	$	116
Leased assets obtained in exchange for new finance lease liabilities	$	—	$	1	$	—	$	1

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BUSINESS SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Summary of Segment Reporting Information by Segment

The following table is a summary of segment information for the three and nine months ended September 30, 2020 and 2019. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net revenues:
DIS business	$	2,709	$	1,877	$	6,217	$	5,561
All other operating segments	77		79		218		239
Total net revenues	$	2,786	$	1,956	$	6,435	$	5,800
Operating earnings (loss):
DIS business	$	840	$	345	$	1,325	$	963
All other operating segments	16		10		29		31
General corporate activities	(138)		(42)		(178)		(126)
Total operating income	718		313		1,176		868
Non-operating income (expense), net	35		(43)		(50)		(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753		270		1,126		748
Income tax expense	(177)		(62)		(269)		(175)
Equity in earnings of equity method investees, net of taxes	15		18		33		48
Income from continuing operations	591		226		890		621
Income from discontinued operations, net of taxes	—		—		—		20
Net income	591		226		890		641
Less: Net income attributable to noncontrolling interests	23		11		38		36
Net income attributable to Quest Diagnostics	$	568	$	215	$	852	$	605

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REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES (Tables)

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The approximate percentage of net revenue by type of customer was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Healthcare insurers:
Fee-for-service	33	%	32	%	33	%	33	%
Capitated	2		3		3		3
Total healthcare insurers	35		35		36		36
Government payers	10		15		12		15
Client payers	40		33		37		32
Patients	12		13		12		13
Total DIS	97		96		97		96
DS	3		4		3		4
Net revenues	100	%	100	%	100	%	100	%

Accounts Receivable Disaggregation

The approximate percentage of net accounts receivable by type of customer was as follows:

	September 30, 2020		December 31, 2019
Healthcare Insurers	30	%	22	%
Government Payers	6		11
Client Payers	48		42
Patients (including coinsurance and deductible responsibilities)	12		20
Total DIS	96		95
DS	4		5
Net accounts receivable	100	%	100	%

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	$ 568	$ 215	$ 852	$ 585
Income from discontinued operations, net of taxes	0	0	0	20
Net income attributable to Quest Diagnostics	568	215	852	605
Less: Earnings allocated to participating securities	2	1	3	2
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted	$ 566	$ 214	$ 849	$ 583
Weighted average common shares outstanding - basic	135	135	134	135
Stock options and performance share units	2	2	2	1
Weighted average common shares outstanding - diluted	137	137	136	136
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic:
Income from continuing operations (in dollars per share)	$ 4.20	$ 1.59	$ 6.33	$ 4.33
Income from discontinued operations (in dollars per share)	0	0	0	0.15
Net income (in dollars per share)	4.20	1.59	6.33	4.48
Earnings per share attributable to Quest Diagnostics’ common stockholders - diluted:
Income from continuing operations (in dollars per share)	4.14	1.56	6.25	4.27
Income from discontinued operations (in dollars per share)	0	0	0	0.15
Net income (in dollars per share)	$ 4.14	$ 1.56	$ 6.25	$ 4.42
Stock options	1	2	1	3

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RESTRUCTURING ACTIVITIES (Pre-Tax Restructuring and Integration Charges) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Restructuring and Related Activities [Abstract]
Employee separation costs	$ 6	$ 0	$ 13	$ (3)

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RESTRUCTURING ACTIVITIES (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Accounts Payable and Accrued Liabilities
Restructuring Cost and Reserve [Line Items]
Restructuring reserve	$ 9	$ 9		$ 9
Cost of services
Restructuring Cost and Reserve [Line Items]
Total restructuring charges	$ 6	9	$ (1)
Selling, general and administrative
Restructuring Cost and Reserve [Line Items]
Total restructuring charges		$ 4	$ (2)

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BUSINESS ACQUISITIONS (Details) - USD ($)					3 Months Ended		9 Months Ended
	Aug. 01, 2020	Jul. 31, 2020	Apr. 06, 2020	Jan. 21, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 31, 2018
Business Acquisition [Line Items]
Cash acquired from acquisition					$ 18,000,000	$ 0	$ 21,000,000	$ 0
Goodwill					$ 6,880,000,000		$ 6,880,000,000		$ 6,619,000,000	$ 6,563,000,000
Customer Relationships
Business Acquisition [Line Items]
Intangible assets, useful life							17 years
Blueprint Genetics Oy
Business Acquisition [Line Items]
Cash paid for business acquisitions				$ 108,000,000
Cash acquired from acquisition				3,000,000
Goodwill				77,000,000
Goodwill, expected tax deductible amount				0
Intangible assets				43,000,000
Deferred tax liabilities				11,000,000
Property, plant and equipment and working capital				$ 2,000,000
Blueprint Genetics Oy | Technology
Business Acquisition [Line Items]
Intangible assets, useful life				10 years
Blueprint Genetics Oy | Customer Relationships
Business Acquisition [Line Items]
Intangible assets, useful life				15 years
Laboratory Services Business, Memorial Hermann
Business Acquisition [Line Items]
Cash paid for business acquisitions			$ 120,000,000
Goodwill			93,000,000
Goodwill, expected tax deductible amount			93,000,000
Laboratory Services Business, Memorial Hermann | Customer Relationships
Business Acquisition [Line Items]
Intangible assets			$ 27,000,000
Intangible assets, useful life			15 years
MACL
Business Acquisition [Line Items]
Cash paid for business acquisitions	$ 93,000,000
Cash acquired from acquisition	18,000,000
Goodwill	84,000,000
Goodwill, expected tax deductible amount	47,000,000
Intangible assets	$ 74,000,000
Percentage of interests acquired	56.00%
Equity interest in acquiree, percentage		44.00%
Equity interest in acquiree, fair value		$ 87,000,000
Long-term growth rate used to determine fair value	1.50%
Dicount rate used to determine fair value	7.50%
Working capital	$ 11,000,000
Property, plant and equipment, net	11,000,000
MACL | Other Income, Net
Business Acquisition [Line Items]
Equity interest in acquiree, remeasurement gain	$ 70,000,000
MACL | Customer Relationships
Business Acquisition [Line Items]
Intangible assets, useful life	15 years

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FAIR VALUE MEASUREMENTS (Recognized Assets and Liabilities at Fair Value) (Details) - Recurring Basis - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Trading securities	$ 60	$ 59
Cash surrender value of life insurance policies	45	43
Available-for-sale debt securities	12	12
Total	117	114
Deferred compensation liabilities	114	110
Contingent consideration		7
Total		145
Redeemable noncontrolling interest	80	76
Fixed-to-variable interest rate swaps
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative liability		28
Quoted Prices in Active Markets for Identical Assets / Liabilities, Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Trading securities	60	59
Cash surrender value of life insurance policies	0	0
Available-for-sale debt securities	0	0
Total	60	59
Deferred compensation liabilities	0	0
Contingent consideration		0
Total		0
Redeemable noncontrolling interest	0	0
Quoted Prices in Active Markets for Identical Assets / Liabilities, Level 1 | Fixed-to-variable interest rate swaps
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative liability		0
Significant Other Observable Inputs, Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Trading securities	0	0
Cash surrender value of life insurance policies	45	43
Available-for-sale debt securities	0	0
Total	45	43
Deferred compensation liabilities	114	110
Contingent consideration		0
Total		138
Significant Other Observable Inputs, Level 2 | Fixed-to-variable interest rate swaps
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative liability		28
Significant Unobservable Inputs, Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Trading securities	0	0
Cash surrender value of life insurance policies	0	0
Available-for-sale debt securities	12	12
Total	12	12
Deferred compensation liabilities	0	0
Contingent consideration		7
Total		7
Redeemable noncontrolling interest	$ 80	76
Significant Unobservable Inputs, Level 3 | Fixed-to-variable interest rate swaps
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Derivative liability		$ 0

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FAIR VALUE MEASUREMENTS (Narrative) (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019	Jul. 01, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair value of debt	$ 5,200	$ 5,100
UMass Joint Venture
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Ownership percentage by noncontrolling owners			18.90%
Fair Value, Inputs, Level 3 | Contingent Consideration
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total (gains)/losses included in earnings - realized/unrealized	1
Fair Value, Inputs, Level 3 | Contingent Consideration | Other Operating (Income) Expense
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total (gains)/losses included in earnings - realized/unrealized	$ 1

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FAIR VALUE MEASUREMENTS (Business Acquisition) (Details) - ReproSource, Inc. $ in Millions	Sep. 30, 2020 USD ($)
Business Acquisition [Line Items]
Maximum Contingent Consideration Payment	$ 10
Comparable Company Revenue Volatility
Business Acquisition [Line Items]
Measurement input	0.085
Discount rate
Business Acquisition [Line Items]
Measurement input	0.065

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FAIR VALUE MEASUREMENTS (Reconciliation of Beginning and Ending Balances of Assets and Liabilities Unobservable Inputs) (Details) - Significant Unobservable Inputs, Level 3 - Contingent Consideration $ in Millions	9 Months Ended
	Sep. 30, 2020 USD ($)
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance, December 31, 2019	$ 7
Settlements	(6)
Total (gains)/losses included in earnings - realized/unrealized	(1)
Balance, September 30, 2020	$ 0

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GOODWILL AND INTANGIBLE ASSETS (Goodwill) (Details) - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Goodwill [Roll Forward]
Goodwill, Balance at beginning of period	$ 6,619	$ 6,563
Goodwill acquired during the period	258	43
Adjustments to goodwill	3	13
Goodwill, Balance at end of period	$ 6,880	$ 6,619

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GOODWILL AND INTANGIBLE ASSETS (Schedules) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	$ 1,968		$ 1,968		$ 1,820
Intangible assets, Accumulated Amortization	(776)		(776)		(699)
Total intangible assets, Net	1,192		1,192		1,121
Amortization expense	27	$ 23	77	$ 72
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Remainder of 2020	27		27
2021	101		101
2022	98		98
2023	96		96
2024	93		93
2025	91		91
Thereafter	450		450
Total	956		956
Intangible Assets Not Subject to Amortization - Tradenames
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	235		235		235
Total intangible assets, Net	235		235		235
Intangible Assets Not Subject to Amortization - Other
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	1		1		1
Total intangible assets, Net	1		$ 1		1
Customer-related intangibles
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Weighted Average Amortization Period			17 years
Intangible assets, Cost	1,479		$ 1,479		1,367
Intangible assets, Accumulated Amortization	(617)		(617)		(556)
Total intangible assets, Net	862		$ 862		811
Non-compete agreements
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Weighted Average Amortization Period			9 years
Intangible assets, Cost	3		$ 3		3
Intangible assets, Accumulated Amortization	(2)		(2)		(2)
Total intangible assets, Net	1		$ 1		1
Technology
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Weighted Average Amortization Period			15 years
Intangible assets, Cost	140		$ 140		104
Intangible assets, Accumulated Amortization	(63)		(63)		(56)
Total intangible assets, Net	77		$ 77		48
Other
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Weighted Average Amortization Period			9 years
Intangible assets, Cost	110		$ 110		110
Intangible assets, Accumulated Amortization	(94)		(94)		(85)
Total intangible assets, Net	16		$ 16		25
Total Amortizing Intangible Assets
Finite-Lived and Indefinite-lived Intangible Assets [Line Items]
Weighted Average Amortization Period			17 years
Intangible assets, Cost	1,732		$ 1,732		1,584
Intangible assets, Accumulated Amortization	(776)		(776)		(699)
Total intangible assets, Net	$ 956		$ 956		$ 885

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DEBT (Long-Term Debt) (Details) - USD ($) $ in Millions	Sep. 30, 2020	May 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total long-term debt	$ 4,573		$ 4,770
Debt issuance costs	(29)		(26)
Less: Current portion of long-term debt	555		804
Total long-term debt, net of current portion	4,018		3,966
Other
Debt Instrument [Line Items]
Other	$ 32		34
Senior Notes | 4.75% Senior Notes due January 2020
Debt Instrument [Line Items]
Debt instrument, interest rate	4.75%
Total long-term debt	$ 0		500
Senior Notes | 2.50% Senior Notes due March 2020
Debt Instrument [Line Items]
Debt instrument, interest rate	2.50%
Total long-term debt	$ 0		300
Senior Notes | 4.70% Senior Notes due April 2021
Debt Instrument [Line Items]
Debt instrument, interest rate	4.70%
Total long-term debt	$ 551		554
Senior Notes | 4.25% Senior Notes due April 2024
Debt Instrument [Line Items]
Debt instrument, interest rate	4.25%
Total long-term debt	$ 317		308
Senior Notes | 3.50% Senior Notes due March 2025
Debt Instrument [Line Items]
Debt instrument, interest rate	3.50%
Total long-term debt	$ 623		593
Senior Notes | 3.45% Senior Notes due June 2026
Debt Instrument [Line Items]
Debt instrument, interest rate	3.45%
Total long-term debt	$ 513		490
Senior Notes | 4.20% Senior Notes due June 2029
Debt Instrument [Line Items]
Debt instrument, interest rate	4.20%
Total long-term debt	$ 499		499
Senior Notes | 2.95% Senior Notes due June 2030
Debt Instrument [Line Items]
Debt instrument, interest rate	2.95%
Total long-term debt	$ 798		798
Senior Notes | 2.80% Senior Notes due June 2031
Debt Instrument [Line Items]
Debt instrument, interest rate	2.80%	2.80%
Total long-term debt	$ 549		0
Senior Notes | 6.95% Senior Notes due July 2037
Debt Instrument [Line Items]
Debt instrument, interest rate	6.95%
Total long-term debt	$ 175		175
Senior Notes | 5.75% Senior Notes due January 2040
Debt Instrument [Line Items]
Debt instrument, interest rate	5.75%
Total long-term debt	$ 245		245
Senior Notes | 4.70% Senior Notes due March 2045
Debt Instrument [Line Items]
Debt instrument, interest rate	4.70%
Total long-term debt	$ 300		$ 300

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DEBT (Retirement of Debt) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2020 USD ($)
Other Nonoperating Income (Expense)
Debt Instrument [Line Items]
Loss on extinguishment	$ 1
Senior Notes | 2.95% Senior Notes due June 2030
Debt Instrument [Line Items]
Debt instrument, interest rate	2.95%

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DEBT (Senior Notes Offering) (Details) - USD ($)	Oct. 23, 2020	Sep. 30, 2020	May 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Discount		$ 11,000,000
Long-term debt		$ 4,573,000,000		$ 4,770,000,000
Senior Notes | 2.80% Senior Notes due June 2031
Debt Instrument [Line Items]
Face amount			$ 550,000,000
Debt instrument, interest rate		2.80%	2.80%
Discount			$ 1,000,000
Debt issuance costs			$ 5,000,000
Long-term debt		$ 549,000,000		0
Senior Notes | 4.70% Senior Notes due April 2021
Debt Instrument [Line Items]
Debt instrument, interest rate		4.70%
Long-term debt		$ 551,000,000		$ 554,000,000
Senior Notes | 4.70% Senior Notes due April 2021 | Subsequent Event | Redemption Notice
Debt Instrument [Line Items]
Face amount	$ 550,000,000
Debt instrument, interest rate	4.70%

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DEBT (Credit Facilities) (Details) - USD ($)	1 Months Ended	9 Months Ended
	Oct. 23, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Cash and cash equivalents		$ 1,605,000,000						$ 1,192,000,000
Remaining borrowing capacity		1,300,000,000
Proceeds from borrowings		749,000,000	$ 1,484,000,000
Credit Facilities
Debt Instrument [Line Items]
Amount outstanding		0
Secured Receivables Credit Facility
Debt Instrument [Line Items]
Remaining borrowing capacity		529,000,000
Proceeds from borrowings		100,000,000
Extinguishment of debt		100,000,000
Secured Receivables Credit Facility | Subsequent Event
Debt Instrument [Line Items]
Extension period	1 year
Credit facility capacity	$ 600,000,000
Senior Unsecured Revolving Credit Facility
Debt Instrument [Line Items]
Remaining borrowing capacity		750,000,000
Proceeds from borrowings		100,000,000
Extinguishment of debt		$ 100,000,000
Senior Unsecured Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Leverage ratio		550.00%
Senior Unsecured Revolving Credit Facility | Maximum | Scenario, Forecast
Debt Instrument [Line Items]
Leverage ratio				350.00%	450.00%	625.00%	650.00%

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DEBT (Maturities of Long-Term Debt) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Debt Instruments [Abstract]
Remainder of 2020	$ 1
2021	553
2022	3
2023	2
2024	302
Thereafter	3,696
Total maturities of long-term debt	4,557
Unamortized discount	(11)
Debt issuance costs	(29)	$ (26)
Fair value basis adjustments attributable to hedged debt	56
Long-term debt	4,573	4,770
Current portion of long-term debt	555	804
Total long-term debt, net of current portion	$ 4,018	$ 3,966

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FINANCIAL INSTRUMENTS (Narrative) (Details) - USD ($)	1 Months Ended	3 Months Ended	9 Months Ended
	Apr. 30, 2020	Jun. 30, 2020	Sep. 30, 2020	May 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Derivative [Line Items]
Amounts recognized in income		$ 1,000,000
Amortization period		10 years
Accumulated other comprehensive loss			$ (42,000,000)			$ (39,000,000)
Net amount of deferred gains and losses on cash flow hedges that is expected to be reclassified within the next 12 months			1,000,000
Cash Flow Hedging
Derivative [Line Items]
Accumulated other comprehensive loss			$ 1,000,000			4,000,000
Forward Starting Interest Rate Swaps
Derivative [Line Items]
Notional amount					$ 25,000,000
Interest Rate Lock Agreements
Derivative [Line Items]
Notional amount				$ 275,000,000
Fixed-to-variable interest rate swaps
Derivative [Line Items]
Notional amount						$ 1,200,000,000
Proceeds from derivative	$ 40,000,000

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FINANCIAL INSTRUMENTS (Balance Sheets) (Details) - Fair Value Hedging - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Derivative [Line Items]
Deferred (gain) loss on discontinuation of fair value hedge		$ 25
Long-term Debt
Derivative [Line Items]
Carrying Amount of Hedged Long-Term Debt	$ 0	1,186
Hedge Accounting Basis Adjustment	$ 56	$ (3)

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FINANCIAL INSTRUMENTS (Income Statement) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Derivative [Line Items]
Other income, net	$ 77	$ 1	$ 74	$ 13
Other Nonoperating Income (Expense)
Derivative [Line Items]
Hedged items (Long-term debt)	0	(20)	(68)	(76)
Other Nonoperating Income (Expense) | Fair Value Hedging
Derivative [Line Items]
Derivatives designated as hedging instruments	$ 0	$ 20	$ 68	$ 76

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STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended							9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Jul. 01, 2015
Schedule of Stockholders' Equity and Redeemable Noncontrolling Interest [Line Items]
Dividends per common share	$ 0.56	$ 0.56	$ 0.56	$ 0.53	$ 0.53	$ 0.53	$ 0.53
Share repurchase authorization remaining available	$ 1,200							$ 1,200
Purchases of treasury stock, value					$ 50			$ 75	$ 150
Reissuance of shares for employee benefit plan								2.1	1.8
UMass Joint Venture
Schedule of Stockholders' Equity and Redeemable Noncontrolling Interest [Line Items]
Ownership percentage by noncontrolling owners										18.90%
Treasury Stock, at Cost [Member]
Schedule of Stockholders' Equity and Redeemable Noncontrolling Interest [Line Items]
Purchases of treasury stock- shares								0.7	1.6
Purchases of treasury stock, value					$ 50			$ 75	$ 150

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SUPPLEMENTAL CASH FLOW & OTHER DATA (Details) - USD ($) $ in Millions	1 Months Ended			3 Months Ended			9 Months Ended
	Oct. 23, 2020	Aug. 31, 2020	Apr. 30, 2020	Sep. 30, 2020	Jun. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Supplemental Cash Flow Elements [Abstract]
Depreciation expense				$ 62		$ 59	$ 186	$ 175
Amortization expense				27		23	77	72
Depreciation and amortization expense				89		82	263	247
Interest expense				(42)		(45)	(126)	(136)
Interest income				0		1	2	3
Interest expense, net				(42)		(44)	(124)	(133)
Interest paid				33		58	136	149
Income taxes paid				148		65	168	148
Accounts payable associated with capital expenditures				55		24	55	24
Dividends payable				76		72	76	72
Fair value of assets acquired				126			377	61
Fair value of liabilities assumed				(9)		0	(29)	0
Fair value of net assets acquired				117			348	61
Merger consideration receivable/payable				2		0	2	(5)
Cash paid for business acquisitions				119		0	350	56
Less: Cash acquired				18		0	21	0
Business acquisitions, net of cash acquired				101			329	56
Leases:
Leased assets obtained in exchange for new operating lease liabilities				40		38	119	116
Leased assets obtained in exchange for new finance lease liabilities				0		$ 1	0	$ 1
CARES Act, amount received from initial tranche			$ 65
CARES Act, amount received from secondary tranche		$ 73
Accounts payable and accrued liabilities, CARES Act proceeds				138			138
CARES Act funds distributed to healthcare providers included in net cash provided by operating activities							$ 138
Other expense (income), net
Subsequent Event [Line Items]
CARES Act proceeds recognized in the statement of operations					$ 65
Reversal of recognition of CARES Act proceeds”				$ 65
Subsequent Event
Subsequent Event [Line Items]
CARES Act, funds decided to be returned	$ 138

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Self-insurance reserves	$ 134,000,000	$ 132,000,000
Secured Receivables Credit Facility
Debt Instrument [Line Items]
Letters of credit outstanding, amount	71,000,000
Secured Receivables Credit Facility | Letter of Credit
Debt Instrument [Line Items]
Credit facility capacity	100,000,000
Revolving Credit Facility | Letter of Credit
Debt Instrument [Line Items]
Credit facility capacity	150,000,000
Excludes general and professional liability claims
Loss Contingencies [Line Items]
Litigation reserves	$ 1,000,000	$ 1,000,000

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BUSINESS SEGMENT INFORMATION (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Segment Reporting Information [Line Items]
Percentage of net revenues	100.00%	100.00%	100.00%	100.00%
Total net revenues	$ 2,786	$ 1,956	$ 6,435	$ 5,800
Total operating income	718	313	1,176	868
Non-operating income (expense), net	35	(43)	(50)	(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	753	270	1,126	748
Income tax expense	(177)	(62)	(269)	(175)
Equity in earnings of equity method investees, net of taxes	15	18	33	48
Income (loss) from continuing operations	591	226	890	621
Income from discontinued operations, net of taxes	0	0	0	20
Net income	591	226	890	641
Less: Net income attributable to noncontrolling interests	23	11	38	36
Net income attributable to Quest Diagnostics	$ 568	$ 215	$ 852	$ 605
DIS business
Segment Reporting Information [Line Items]
Percentage of net revenues	97.00%	96.00%	97.00%	96.00%
Total net revenues	$ 2,709	$ 1,877	$ 6,217	$ 5,561
Total operating income	$ 840	$ 345	$ 1,325	$ 963
DIS business | Minimum
Segment Reporting Information [Line Items]
Percentage of net revenues	95.00%	95.00%	95.00%	95.00%
All other operating segments
Segment Reporting Information [Line Items]
Total net revenues	$ 77	$ 79	$ 218	$ 239
Total operating income	16	10	29	31
General corporate activities
Segment Reporting Information [Line Items]
Total operating income	$ (138)	$ (42)	$ (178)	$ (126)

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RELATED PARTIES (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Equity Method Investee
Related Party Transaction [Line Items]
Revenues	$ 10	$ 8	$ 25	$ 26
Receivables	4		4		$ 4
Accounts payable, related parties	1		1		2
Dividends received			34	27
Equity Method Investee | Prepaid expenses and other current assets
Related Party Transaction [Line Items]
Other accounts receivable, related parties	2		2		1
Equity Method Investee | Selling, general and administrative
Related Party Transaction [Line Items]
Income from related party recognized	4	4	12	12
Joint Venture
Related Party Transaction [Line Items]
Revenues	$ 1	$ 1	$ 2	$ 6
Receivables					$ 4

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REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Segment Reporting Information [Line Items]
Percentage of net revenues	100.00%	100.00%	100.00%	100.00%
Net accounts receivable	100.00%		100.00%		100.00%
DIS business
Segment Reporting Information [Line Items]
Percentage of net revenues	97.00%	96.00%	97.00%	96.00%
Net accounts receivable	96.00%		96.00%		95.00%
DIS business | Healthcare Insurers
Segment Reporting Information [Line Items]
Percentage of net revenues	35.00%	35.00%	36.00%	36.00%
Net accounts receivable	30.00%		30.00%		22.00%
DIS business | Healthcare Insurers | Fee-for-service
Segment Reporting Information [Line Items]
Percentage of net revenues	33.00%	32.00%	33.00%	33.00%
DIS business | Healthcare Insurers | Capitated
Segment Reporting Information [Line Items]
Percentage of net revenues	2.00%	3.00%	3.00%	3.00%
DIS business | Government Payers
Segment Reporting Information [Line Items]
Percentage of net revenues	10.00%	15.00%	12.00%	15.00%
Net accounts receivable	6.00%		6.00%		11.00%
DIS business | Client Payers
Segment Reporting Information [Line Items]
Percentage of net revenues	40.00%	33.00%	37.00%	32.00%
Net accounts receivable	48.00%		48.00%		42.00%
DIS business | Patients
Segment Reporting Information [Line Items]
Percentage of net revenues	12.00%	13.00%	12.00%	13.00%
Net accounts receivable	12.00%		12.00%		20.00%
DIS business | Minimum
Segment Reporting Information [Line Items]
Percentage of net revenues	95.00%	95.00%	95.00%	95.00%
All other operating segments | DS Businesses
Segment Reporting Information [Line Items]
Percentage of net revenues	3.00%	4.00%	3.00%	4.00%
Net accounts receivable	4.00%		4.00%		5.00%

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TAXES ON INCOME (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
	Aug. 01, 2020	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Effective income tax rate		23.70%	22.90%	23.90%	23.40%
Share-based compensation, excess tax benefit, amount		$ 3	$ 3	$ 15	$ 11
Income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards			$ 6		$ 10
MACL
Business Acquisition [Line Items]
Effective tax rate on remeasurement in acquisition	11.80%

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DISCONTINUED OPERATIONS (Details) - NID [Member] $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Gain on settling uncertain tax benefits	$ 20
Refund from taxing authorities related to settlement of the uncertain tax benefits	$ 28

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SUBSEQUENT EVENT (Details) - USD ($)		1 Months Ended
	Oct. 23, 2020	Oct. 23, 2020	Apr. 30, 2020	Sep. 30, 2020
Subsequent Event [Line Items]
CARES Act, amount received from initial tranche			$ 65,000,000
Secured Receivables Credit Facility | Letter of Credit
Subsequent Event [Line Items]
Credit facility capacity				$ 100,000,000
Senior Notes | 4.70% Senior Notes due April 2021
Subsequent Event [Line Items]
Debt instrument, interest rate				4.70%
Subsequent Event
Subsequent Event [Line Items]
CARES Act, funds decided to be returned		$ 138,000,000
Subsequent Event | Secured Receivables Credit Facility
Subsequent Event [Line Items]
Credit facility capacity	$ 600,000,000	600,000,000
Subsequent Event | Secured Receivables Credit Facility | Highly-rated issuers or LIBOR | Minimum
Subsequent Event [Line Items]
Interest rate in excess of LIBOR	0.825%
Subsequent Event | Secured Receivables Credit Facility | Highly-rated issuers or LIBOR | Maximum
Subsequent Event [Line Items]
Interest rate in excess of LIBOR	0.95%
Subsequent Event | Secured Receivables Credit Facility | Letter of Credit
Subsequent Event [Line Items]
Credit facility capacity	$ 100,000,000	100,000,000
Subsequent Event | Secured Receivables Credit Facility | Loan commitment maturing October 2021
Subsequent Event [Line Items]
Credit facility capacity	250,000,000	250,000,000
Subsequent Event | Secured Receivables Credit Facility | Loan commitment maturing October 2022
Subsequent Event [Line Items]
Credit facility capacity	250,000,000	250,000,000
Subsequent Event | Senior Notes | 4.70% Senior Notes due April 2021 | Redemption Notice
Subsequent Event [Line Items]
Face amount	$ 550,000,000	$ 550,000,000
Debt instrument, interest rate	4.70%	4.70%