Quest Diagnostics 2007 Annual Report Download - page 34

information. Failure to timely or correctly bill may lead to our not being reimbursed for our services or an
increase in the aging of our accounts receivable, which could adversely affect our results of operations and cash
flows. Failure to comply with applicable laws relating to billing federal healthcare programs could lead to various
penalties, including (1) exclusion from participation in Medicare/Medicaid programs; (2) asset forfeitures; (3) civil
and criminal fines and penalties; and (4) the loss of various licenses, certificates and authorizations necessary to
operate our business, any of which could have a material adverse effect on our results of operations or cash
flows.
Failure in our information technology systems, including failures resulting from our systems conversions,
could disrupt our operations and cause the loss of customers or business opportunities.
Information technology (IT) systems are used extensively in virtually all aspects of our business, including
clinical testing, test reporting, billing, customer service, logistics and management of medical data. Our success
depends, in part, on the continued and uninterrupted performance of our IT systems. IT systems may be
vulnerable to damage from a variety of sources, including telecommunications or network failures, human acts
and natural disasters. Moreover, despite the security measures we have implemented, our IT systems may be
subject to physical or electronic break-ins, computer viruses and similar disruptive problems. We also have taken
precautionary measures to prevent unanticipated problems that could affect our IT systems. Nevertheless, we may
experience damages to our systems, and system failures and interruptions.
In addition, we are in the process of implementing standard laboratory information and billing systems,
which we expect will take several years to complete. Failure to properly implement this standardization process
could materially adversely affect our business. During system conversions of this type, 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 carefully.
If we experience systems problems, including with our implementation of standard laboratory or billing
systems, they may interrupt our ability to operate. For example, the problems may impact our ability to process
test orders, deliver test results or perform or bill for tests in a timely manner. If our operations are interrupted, it
could adversely affect our reputation and result in a loss of customers and net revenues.
Failure to develop, or acquire licenses for, new tests, technology and services could negatively impact our
testing volume and net revenues.
The diagnostics testing industry is faced with changing technology and new product introductions. Other
companies or individuals, including our competitors, may obtain patents or other property rights that would
prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business or increase
our costs. In addition, they could introduce new tests that may result in a decrease in the demand for our tests or
cause us to reduce the prices of our tests. Our success in continuing to introduce new tests, technology and
services will depend, in part, on our ability to license new and improved technologies on favorable terms. We
may be unable to develop or introduce new tests. We also may be unable to continue to negotiate acceptable
licensing arrangements, and arrangements that we do conclude may not yield commercially successful diagnostic
tests. If we are unable to license these testing methods at competitive rates, our research and development costs
may increase as a result. In addition, if we are unable to develop and introduce, or license, new tests, technology
and services to expand our esoteric testing business, our testing methods may become outdated when compared
with our competition and our testing volume and revenue may be materially and adversely affected.
The development of new, more cost-effective tests that can be performed by our customers or by patients
could negatively impact our testing volume and net revenues.
Advances in technology may lead to the development of more cost-effective tests that can be performed
outside of an independent clinical laboratory such as (1) point-of-care tests that can be performed by physicians
in their offices, (2) esoteric tests that can be performed by hospitals in their own laboratories or (3) home testing
that can be performed by patients in their homes or by physicians in their offices. Although the CLIA
compliance costs make it cost prohibitive for many physicians to operate clinical laboratories in their offices,
manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care
test equipment to physicians. Diagnostic tests approved or cleared by the FDA for home use are automatically
deemed to be “waived” tests under CLIA and may be performed in physician office laboratories with minimal
regulatory oversight under CLIA as well as by patients in their homes. Test kit manufacturers could seek to
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