Quest Diagnostics 2006 Annual Report Download - page 75

of providing the complete and correct billing information within the various filing deadlines. Collection typically
occurs within 30 days of billing. Our processes for billing, collecting and estimating uncollectible amounts for
receivables due from government payers, as well as the risk of non-collection, are substantially the same as those
noted above for healthcare insurers under negotiated fee-for-service arrangements.
Client payers
Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed
based on a negotiated fee schedule. Receivables due from client payers represent approximately 38% of our net
accounts receivable. Credit risk and ability to pay are more of a consideration for these payers than healthcare
insurers and government payers. We utilize a standard approach to establish allowances for doubtful accounts for
such receivables, which considers the aging of the receivables and results in increased allowance requirements as
the aging of the related receivables increase. Our approach also considers specific account reviews, historical
collection experience and other factors.
Patient receivables
Patients are billed based on established patient fee schedules, subject to any limitations on fees negotiated
with healthcare insurers or physicians on behalf of the patient. Receivables due from patients represent
approximately 23% of our net accounts receivable. Collection of receivables due from patients is subject to credit
risk and ability of the patients to pay. We utilize a standard approach to establish allowances for doubtful
accounts for such receivables, which considers the aging of the receivables and results in increased allowance
requirements as the aging of the related receivables increases. Our approach also considers historical collection
experience and other factors. Patient receivables are generally fully reserved for when the related billing reaches
210 days outstanding. Balances are automatically written off when they are sent to collection agencies. Reserves
are adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection
experience, which is regularly monitored.
Reserves for general and professional liability claims
As a general matter, providers of clinical laboratory testing services may be subject to lawsuits alleging
negligence or other similar legal claims. These suits could involve claims for substantial damages. Any
professional liability litigation could also have an adverse impact on our client base and reputation. We maintain
various liability insurance coverages for claims that could result from providing or failing to provide clinical
laboratory testing services, including inaccurate testing results and other exposures. Our insurance coverage limits
our maximum exposure on individual claims; however, we are essentially self-insured for a significant portion of
these claims. While the basis for claims reserves considers actuarially determined losses based upon our historical
and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to
these types of claims involves a high degree of judgment. Changes in the facts and circumstances associated with
claims could have a material impact on our results of operations, principally costs of services, and cash flows in
the period that reserve estimates are revised or paid. Although we believe that our present insurance coverage and
reserves are sufficient to cover currently estimated exposures, it is possible that we may incur liabilities in excess
of our insurance coverage or recorded reserves.
Reserves for other legal proceedings
Our business is subject to extensive and frequently changing federal, state and local laws and regulations. In
addition, we are aware of certain pending lawsuits related to billing practices filed under the qui tam provisions
of the False Claims Act and other federal and state statutes. See Note 14 to the Consolidated Financial
Statements for a discussion of the various legal proceedings that involve the Company. We have a comprehensive
compliance program that is intended to ensure the strict implementation and observance of all applicable laws,
regulations and Company policies. Management periodically reports to the Quality, Safety & Compliance
Committee of the Board of Directors regarding compliance operations. As an integral part of our compliance
program, we investigate all reported or suspected failures to comply with federal and state healthcare
reimbursement requirements. Any non-compliance that results in Medicare or Medicaid overpayments is reported
to the government and reimbursed by us. As a result of these efforts, we have periodically identified and reported
overpayments. Upon becoming aware of potential overpayments, we will consider all available facts and
circumstances to estimate and record the amounts to be reimbursed. While we have reimbursed these
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