Quest Diagnostics 2005 Annual Report Download - page 24

Administration, or FDA, and other international regulatory authorities to assess the safety and efficacy of new
drugs. We have clinical trials testing centers in the United States and in the United Kingdom. We also provide
clinical trials testing in Australia, Singapore and South Africa through arrangements with third parties. Clinical
trials involving new drugs are increasingly being performed both inside and outside the United States.
Approximately 50% of our net revenues from clinical trials testing in 2005 represented testing for
GlaxoSmithKline plc, or GSK. We currently have a long-term contractual relationship with GSK, under which
we are the primary provider of testing to support GSK’s clinical trials testing requirements worldwide.
Other Services and Products
We manufacture and market diagnostic test kits and systems primarily for esoteric testing through our
Nichols Institute Diagnostics subsidiary. These are sold principally to hospitals, clinical laboratories and dialysis
centers, both domestically and internationally.
Our MedPlus subsidiary is a developer and integrator of clinical connectivity and data management
solutions for healthcare organizations, physicians and clinicians primarily through its ChartMaxx威 electronic
medical record system for hospitals and our Care360 suite of products. The Care360 Physician Portal was
developed by MedPlus and enables physicians to order diagnostic tests and review laboratory results from Quest
Diagnostics online. In addition, the Care360 Physician Portal enables physicians to electronically prescribe
medications, view clinical and administrative information from multiple sources, file certain documents into a
patient-centric health record maintained in our repository and share confidential patient information with medical
colleagues in a manner that is consistent with HIPAA privacy and security requirements.
Payers and Customers
We provide testing services to a broad range of healthcare providers. We consider a “payer’’ as the party
that pays for the test and a “customer’’ as the party who refers the test to us. Depending on the billing
arrangement and applicable law, the payer may be (1) the physician or other party (such as a hospital, another
laboratory or an employer) who referred the testing to us, (2) the patient, or (3) a third party who pays the bill
for the patient, such as an insurance company, Medicare or Medicaid. Some states, including New York, New
Jersey and Rhode Island, prohibit us from billing physician clients. During 2005, only three customers
accounted for 5% or more of our net revenues, and no single customer accounted for more than 8% of our net
revenues. We believe that the loss of any one of our customers would not have a material adverse effect on our
financial condition, results of operations or cash flows.
The following table shows current estimates of the breakdown of the percentage of our total volume of
requisitions and net revenues associated with our clinical laboratory testing business during 2005 applicable to
each payer group:
Net Revenues
as % of
Total
Requisition Volume Clinical Laboratory
as % of Testing
Total Volume Net Revenues
Patient ............................................... 2% – 5% 5% – 10%
Medicare and Medicaid ................................ 15% – 20% 15% – 20%
Physicians, Hospitals, Employers and Other
Monthly-Billed Clients .............................. 30% – 35% 20% – 25%
Healthcare Insurers-Fee-for-Service ..................... 30% – 35% 40% – 45%
Healthcare Insurers-Capitated........................... 15% – 20% 5% – 10%
Physicians
Physicians requiring testing for patients are the primary referral source of our clinical laboratory testing
volume. Testing referred by physicians is typically billed to healthcare insurers, government programs such as
Medicare and Medicaid, patients and physicians. Physicians are typically billed on a fee-for-service basis based
on negotiated fee schedules. Fees billed to patients and healthcare insurers are based on the laboratory’s patient
fee schedule, subject to any limitations on fees negotiated with the healthcare insurers or with physicians on
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