Question-and-Answer Session
Operator
At this time, we will begin the question-and-answer session. (Operator Instructions). Our first question comes from Ralph Giacobbe - Credit Suisse.
Ralph Giacobbe - Credit Suisse
I was wondering if you could help us a little bit with the one-timers or maybe when we anniversary some of the volume headwinds, the lab management contracts and drugs of abuse testing, I’m assuming we should get less of a pressure as we moved into the second half of the year.
Robert A. Hagemann
First on the drugs of abuse testing, that’s a business that we think has probably hit bottom at this point. If you look over the last several quarters, the volumes relative to the prior year had been down by a consistent amount, by about 24-25% or so, but we don’t see that impact anniversarying until late in the fourth quarter this year because it really wasn’t until December of last year that we saw the big drop off to where we are now. The other piece of your question had to do with the lab management agreements, and they actually anniversary in the third quarter, at the beginning of the third quarter.
Ralph Giacobbe - Credit Suisse
In terms of the operating margin guidance, 18% for the year, you’re halfway through. We’re sort of there already. Anything we need to keep in mind for the back half of the year as I would think that we should continue to see sequential improvement in that margin?
Robert A. Hagemann
I think what you’ll see is continued improvement over the prior year as we get into the back half. Remember that the first half of this year has the benefit of the insurance settlement in it which was 80 basis points in the quarter and about 40 basis points year to date so far, but in the back of the year, we do expect to see continued improvement versus the prior year.
Ralph Giacobbe - Credit Suisse
Last wee, we had the CPI release which obviously translates to a 1.9% decline for the Medicare fee schedule next year. First, is there anything you or the industry can do to change that, or it is what it is, and then secondly can you remind us how you negotiate your managed care rates, and is it hinged on Medicare and/or CPI?
Laure Park
As it relates to the CPI, as adjusted for the 50 basis points, that’s legislated by the 2008 bill, so right now that’s in effect, but what we’re working to do along with the industry is to deal with the proposal that’s sitting in one of the bills around to having a productivity adjustment as well which we’re vigorously working with on the trade association. As it relates to our health plan contracts, very few are linked directly to Medicare changes. Some are CPI, and some others have different modifiers going forward, but each contract is unique.
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