Quest Diagnostics 2006 Annual Report Download - page 34

substance-of-abuse and wellness testing to employers. We also have a sales force that focuses on selling risk
assessment testing services to life insurance companies. With the completion of our acquisition of HemoCue and
Focus Diagnostics, we also have a sales force that will focus on selling products to hospitals, commercial clinical
laboratories and physician office laboratories.
Customer service representatives perform a number of services for patients and customers. They monitor
services, answer questions and help resolve problems. Our couriers pick up specimens from most clients daily.
Our corporate marketing function is organized by customer type and is responsible for developing and
executing marketing strategies, new product launches, and promotional and advertising support.
Information Systems
Information systems are used extensively in virtually all aspects of our business, including laboratory testing,
billing, customer service, logistics and management of medical data. The successful delivery of our services
depends, in part, on the continued and uninterrupted performance of our information technology, or IT, systems.
IT systems are vulnerable to damage from a variety of root causes, including telecommunications or network
failures, malicious human acts and natural disasters. Moreover, despite network security measures, some of our
servers are potentially exposed to physical or electronic break-in attempts, computer viruses and similar disruptive
problems. Despite the precautionary measures that we have taken to prevent unanticipated problems that could
affect our IT systems, sustained or repeated system failures that would interrupt our ability to process test orders,
deliver test results or perform tests in a timely manner could adversely affect our reputation and result in a loss
of customers and net revenues.
Historically, acquired companies were often operated as local decentralized units, and we did not standardize
their billing, laboratory or their other core information systems. This resulted in many different information
systems for billing, test results reporting and other transactions.
We are in the process of implementing a standard laboratory information system and a standard billing
system across all of our operations, including those from our most recent acquisitions, which we expect will take
several more years to complete. It will result in significantly more centralized systems than we have even today
and better control over the operational environment. We expect the integration of these systems will improve
operating efficiency and provide management with more timely and comprehensive information with which to
make management decisions. However, failure to properly implement this standardization process could materially
adversely affect our business. During system conversions of this magnitude, workflow is re-engineered to take
advantage of best practices and enhanced system capabilities, which may cause temporary disruptions in service.
In addition, the implementation process, including the transfer of databases and master files to new data centers,
presents significant conversion risks that need to be managed very carefully.
Billing
Billing for laboratory services is complicated. Depending on the billing arrangement and applicable law, we
must bill various payers, such as patients, insurance companies, Medicare, Medicaid, physicians, hospitals and
employer groups, all of which have different billing requirements. Additionally, auditing for compliance with
applicable laws and regulations as well as internal compliance policies and procedures adds further complexity to
the billing process. Other factors that complicate billing include:
•differences between our fee schedules and the reimbursement rates of the payers;
•disparity in coverage and information requirements among various payers;
•missing, incomplete or inaccurate billing information provided by ordering physicians;
•billings to payers with whom we do not have contracts; and
•disputes with payers as to which party is responsible for payment.
We incur additional costs as a result of our participation in Medicare and Medicaid programs because billing
and reimbursement for clinical laboratory testing is subject to numerous federal and state regulations and other
billing requirements. These additional costs include those related to: (1) complexity added to our billing
processes; (2) training and education of our employees and customers; (3) compliance and legal costs; and (4)
costs related to, among other factors, medical necessity denials and advance beneficiary notices. Compliance with
applicable laws and regulations, as well as internal compliance policies and procedures, adds further complexity
and costs to our operations. Changes in laws and regulations could negatively impact our ability to bill our
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