Quest Diagnostics 1996 Annual Report Download - page 4

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turned our attention to integrating
our diverse operations.
We implemented a “Focus” process
that identified critical success factors
and began putting into place systems
and processes marked by rigorous
attention to quality management.
We renewed our commitment to
full compliance with all regulatory
requirements, and the Department of
Health and Human Services cited our
corporate compliance program as “a
model for the industry.”
We launched a major assault on our
historic problem of bad debt expense,
which stems from a combination of
non-standardized billing practices and
increasingly complex payor require-
ments. For the year, our bad debt
expense averaged 6.9% of sales, down
from 9.4% in 1995. While we have
made significant progress, much work
remains in order to meet our goal of
reducing bad debt expense to 4% of
sales by 2000.
We began to develop a systematic
process for weeding out unprofitable
accounts, disciplining ourselves to
begin terminating high volume con-
tracts that fail to provide a sufficient
return for the services we provide.
We intensified our emphasis on inno-
vation, developing more than 120
new test assays in our research and
development facilities at Nichols
Institute.
We accomplished all of this, and at
the same time, took our company
public.
Looking Ahead
We began 1997 with the installation
of our new Board of Directors, an
experienced and diverse group of out-
standing leaders from the worlds of
business, technology, and goverment.
Our primary goal in the new year is to
pursue the “highest quality and lowest
cost” component of our strategy
through standardization of business
processes and information technology,
including company-wide implementa-
tion of best practices that already exist
inside Quest Diagnostics. To scale the
opportunity, the approximate average
cost of processing each requisition
ranged last year from $17 at our most
efficient lab to a high of $30. Our
goal is to reduce our current average
cost per requisition of approximately
$25 by about $3 by the year 2000.
The potential payoff is substantial.
Each $1 we shave from the average
cost produces approximately $60 mil-
lion in operating profit.
We are standardizing our approach to
managing our customer accounts,
striving to better align our pricing
with the value of the services we pro-
vide. Historically, our industry, and
our company believed that incremen-
tal volume, at virtually any price,
would generate good returns. Reality
has taught us an important lesson in
this regard.
We developed a clear, three-pronged
strategy:
• To be the best supplier of the high-
est quality and lowest cost diagnostic
testing, information and services;
• To be the preferred partner with
large buyers of health care services; and
• To be the leading innovator for
diagnostic testing, information and
services.
Each component of the strategy is
described in detail later in this report.
We undertook a strategic review of
our business, market by market. We
believe that health care remains pri-
marily a regional business. In ten of
our seventeen regions we are the mar-
ket leader. We determined that in
those regions where we are not a
strong competitor, we will act aggres-
sively to fix our operations, dispose
of them, or seek creative ways to
secure competitive leadership.
We installed a strong management
team, combining experienced
Corning executives with seasoned
veterans from other health care
companies.
We restructured the organization of
our company for the first time in
more than ten years to align our
operations with our new strategy and
assigned clear accountability for meet-
ing the objectives essential to the suc-
cess of the strategy.