The Lab Wrapper Trap: Why Betting on Quest and Labcorp Beats Betting Against Them

Disclaimer: The views and opinions expressed in this essay are solely my own and do not reflect the views, positions, or strategies of my employer, Datavant, or any of its affiliates.

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Abstract

This essay examines the investment thesis behind consumer health companies built as service layers atop Quest Diagnostics and Labcorp’s laboratory infrastructure, arguing that direct investment in the underlying lab giants offers superior risk-adjusted returns. While wrapper companies like Function Health demonstrate impressive marketing execution and create genuine consumer value through improved UX and care coordination, their business models face structural disadvantages including margin compression, limited pricing power, challenging unit economics, and vulnerability to disintermediation. Analysis of Q3 2025 earnings from both Quest and Labcorp reveals robust organic growth, expanding margins, and strategic positioning that captures value across multiple customer channels. For health tech angels, this comparison illustrates why infrastructure ownership typically generates more durable returns than service-layer businesses in healthcare, particularly when the underlying infrastructure players are actively moving upmarket into the same consumer segments that wrappers target.

Table of Contents

The Wrapper Economy in Healthcare Diagnostics

What Quest and Labcorp’s Q3 Numbers Actually Tell Us

The Structural Problem with Lab Wrappers

Where Value Actually Accrues in Diagnostic Value Chains

Why the Giants Are Better Positioned for Consumer

The Capital Efficiency Mirage

What This Means for Angel Investors

The Wrapper Economy in Healthcare Diagnostics

There’s a recurring pattern in healthcare investing where entrepreneurs look at incumbents with bad UX, identify a specific customer segment being underserved, and build a consumer-friendly layer on top of existing infrastructure. Sometimes this works spectacularly. Oscar Health went public. Hims became a real business. Ro has built something sustainable. But for every success story, there are dozens of companies that discovered they were renting someone else’s infrastructure on terms that made profitability impossible.

The current wave of direct-to-consumer lab testing companies represents the latest iteration of this pattern. Function Health, Everlywell before its struggles, the proliferation of longevity clinics ordering comprehensive panels through aggregators. All of them are fundamentally in the business of making Quest and Labcorp easier to use for consumers who are willing to pay cash. The value prop is real. Going to a Quest patient service center feels like visiting a DMV in 1987. The paperwork is insane, the results come back in formats designed for physicians not patients, and the whole experience screams “this was built for insurance billing not human beings.” So there’s obvious room for someone to add a layer that makes this tolerable.

But here’s the thing about building on someone else’s infrastructure in healthcare. The infrastructure owner has all the leverage, captures most of the economics, and is probably already thinking about moving into whatever adjacent market you’re creating. And when you look at what Quest and Labcorp are actually doing based on their recent earnings, it becomes pretty clear they’re not sitting still while wrapper companies try to capture the consumer diagnostics opportunity.

What Quest and Labcorp’s Q3 Numbers Actually Tell Us