Other factors influencing the recommendation were weather, intensifying competition and possible pricing pressures from public payors. The analysts reported that “Downside risks: competition, Medicare / Medicaid / VA cuts, weak demand. Upside risks: accretive M&A and share buyback, higher volume growth.”

The United States Department of Labor is investigating Labcorp for not being in compliance with their affirmative action plan and for discriminating against certain sectors of the population. In a recent letter received by LabCorp Sucks from a former employee, the U.S. Department of Labor, Employment Standards Administration’s Office of Federal Contract Compliance Programs requested that their Jacksonville, Florida office consider the allegations made by the former employee when conducting future compliance evaluations of Laboratory Corporation of America

If Laboratory Corporation of America (LabCorp) is found to not be in compliance and fails to correct the problems, they can be sanctioned and could even be restricted from participating in the Medicaid and Medicare program, two major income sources for the Laboratory company. LabCorp can also be prohibited from participating in other government programs, including the CHAMPUS program (The Civilian Health and Medical Program of the Uniformed Services) that provides laboratory services to government employees, and to Veterans Administration program beneficiaries. LabCorp currently contracts with all these government programs to provide reference laboratory services to program participants. Since many HMOs that serve the beneficiaries of these federal programs also contract with LabCorp, the HMOs would also be restricted from using LabCorp. The loss in business could be in the hundreds of millions and could be catastrophic to LabCorp stock (NYSE: LH).

LabCorp’s discrimination problems have been well known to company insiders. The company has various lawsuits pending and has had to settle others by paying out millions. In a recent Florida case, LabCorp even had to fire the law firm representing them after accusations of obstruction of justice by the firm.

LabCorp’s total revenues for the fourth quarter rose to $1.17 billion, up from $1.12 billion the year before. For the full year, the company had profits of $543.3 million, up from earnings of $464.5 million in 2008. The increase also includes all the income from the labs that Labcorp has acquired.

Labcorp also announced that it will be spending $250 Million to buy back shares of their own stock. Labcorp’s Chairman and CEO David King said “ We remain optimistic about the growth opportunities that lie ahead for us in 2010, and we are well positioned to capitalize on them.”  I highlight the word lie because while he was making the statement, he was filing with the Securities and Exchange Commission that he had just sold shares of LabCorp stock and pocketed over $171,960 in profits. You would think that when the head of a company announces positive results and claims to be “optimistic about the growth opportunities” he would be buying stock, not selling it. But then he owns lots of LabCorp stock and could have sold for other reasons.

One thing that LabCorp CEO David P. King didn’t boast about is that of a rumored investigation of LabCorp by the US Department of Labor, Employment Standards Administration, Office of Federal Contract Compliance Program. According to posts in CafePharma.com, LabCorp’s Florida operations are in trouble. They had to settle an employment lawsuit at a rumored cost of about $2.7 Million. In addition, they have a pending Federal lawsuit from a former employee that has not gone too well for them. With allegations of witness tampering and obstruction of justice, LabCorp has had to fire the law firm that was handling the case. The posts include the following:

OFCCP would like to hear from those who have been discriminated against based on a protected characteristic. (personal info removed) A formal recommendation has been made for an investigation of LCA Florida. Those who aren’t afraid to get their hands dirty, write:

US Department of Labor
Employment Standards Administration
Office of Federal Contract Compliance Program
Charles E Bennett Federal Building
400 West Bay Street
Room 939
Jacksonville, Florida 32202

or call:

(904) 351-0551

SUBJECT: LABCORP CONDUCT IN FLORIDA.

 All correspondence is confidential. 

Well that was last month. Just a few days ago Labcorp went to the state and local governments in North Carolina for a handout of taxpayer money.  LabCorp wants to consolidate its billing operations and if it selects Greensboro as the location of the new facility, it would receive nearly $900,000 in taxpayer money. That’s free money from the taxpayers that will never be repaid.

Will the N1H1 Swine Flu help offset these factors? The answer is a flat out no. LabCorp won’t get much of a boost from a swine flu outbreak because flu testing is only a small part of its business.

Even though LabCorp is buying back their own shares, it may not be enough to maintain the share prices at their current levels. Laboratory Corp. of America announced that they will buy back up to $250 million of common stock under a repurchase plan approved by its directors. LabCorp purchased a total of $500 million worth of shares under its previous stock buy-back plan. About $95 million of those repurchases have taken place since the end of June.

With employee dissatisfaction, pending lawsuits and ongoing management problems, it looks like shares of Laboratory Corporation of America are heading down quickly. Some of the company’s insiders sold the shares ahead of the downgrades.

On 09/08/09 LANE WENDY E, a Director, sold 4,116 shares for $68.70 a share.

On 09/02/09 LANE WENDY E, sold 2,604 shares at $68.78  a share.

On 08/17/09 HARDISON DONALD M, the company’s Chief Operating Officer, sold 854 shares at $69.50 per share.

According to Yahoo Finance, during the past 6 months there have been no insider purchases and 5 insider sales. A total of 12,481 shares have been sold by insiders and a net 12,258,100 shares have been sold by institutions, after taking into account purchases by institutions. It seems that some of those who really know what is going on are selling.

Excluding restructuring charges, earnings per share were $1.30, compared to $1.24 last year. That’s an almost 5% increase in earnings.

Laboratory Corporation of America, whose NYSE symbol is LH, said its testing volumes rose 2.4 percent from the second quarter of last year, and revenues were $1.19 billion, an increase of 3.6 percent from the same period a year ago.

With about $1.2 billing in revenue for the quarter, LabCorp is making lots of money for their shareholders. But is it at the expense of patients? Is it by sacrificing quality of care? According to patient complaints on this site, it’s a very real possibility. Has Laboratory Corporation of America forgotten that it’s the patients that matter, and not just the insurance companies and third party payers?

When a company grows quickly, it tends to lose its competitive advantage by losing some control over its operation. Incompetent managers take control and run matters their own way, without regards to core company values. In most cases the senior managers see this happening and take immediate action to eliminate the bad apples. The decisions are made by senior managers who have the foresight to see their company succeed in the long-term, not just the short-term. In my personal opinion, LabCorp senior managers have not taken the necessary actions needed to get rid of those lower level managers who will eventually lead to the demise of such a fast growing company. It’s a common story in the health care industry. Remember Integrated Health Services, Coastal Physician Group and Coach? They all had big short-term growth but in the end did not succeed.

The FDA warning letter and possible criminal and civil action against LabCorp could be the beginning of the end for Laboratory Corporation of America. I say this because as one government agency moves against them, there are possibly other government agencies that might step up to further investigate other allegations against the company. It’s about time that this regulatory oversight process start. For too long LabCorp has focused on the buck as opposed to the law and the required quality standards. In my own opinion, it is a company that is out of control.

Here’s the FDA story:

WASHINGTON, Oct 8 (Reuters) – Laboratory Corp of America (LH.N: Quote, Profile, Research, Stock Buzz) is violating the law by selling an ovarian cancer screening test without regulatory approval, U.S. health officials said on Wednesday.

The OvaSure test does not fall in a category that can be sold without prior clearance from the agency, the Food and Drug Administration said.

“Because you do not have marketing clearance or approval from the FDA, marketing OvaSure is in violation of the law,” the agency said in a letter dated Sept. 29.

The agency told the company to “take prompt action to correct these violations.”

LabCorp spokesman Eric Lindblom said the company was “disappointed” by the letter.

“We are currently in discussions with the FDA over the next steps and of course we share the FDA’s determination to assure patients are protected,” he said.

The company started selling the blood test in June, saying it could detect early-stage ovarian cancer in high-risk women.

The FDA letter was posted on the FDA website. You can read the full letter by clicking here.

LabCorp shares (NYSE: LH) fell nearly 1.8 percent today to close at $60.63 on the New York Stock Exchange.

At one point during the day LH stock was down almost $7, losing over 10% of the company’s market value. Laboratory Corporation of America’s stock trades on the New York Stock Exchange under the symbol LH.