Quest Diagnostics 2008 Annual Report Download - page 34

From time to time, Congress has legislated reductions in, or frozen updates to, the Medicare Clinical
Laboratory Fee Schedule. In addition, CMS has adopted policies limiting or excluding coverage for clinical tests
that we perform. We also provide physician services which are reimbursed by Medicare under a physician fee
schedule, which is subject to adjustment on an annual basis. CMS changes add to our costs by increasing
complexity and administrative requirements. Medicaid reimbursement varies by state and is subject to
administrative and billing requirements and budget pressures.
In addition, over the last several years, the federal government has sponsored programs to expand private
health insurance programs for Medicare beneficiaries, called “Medicare Advantage” programs, and has encouraged
such beneficiaries to switch from the traditional programs to the private programs. There has been rapid growth
of health insurance plans offering Medicare Advantage programs, and of beneficiary enrollment in these
programs. Also in recent years, states have increasingly mandated that Medicaid beneficiaries enroll in private
managed care arrangements. If these efforts continue to be successful, we may experience a further shift of
traditional Medicare and Medicaid beneficiaries to private health insurance options. Recently, state budget
pressures have encouraged states to consider several courses that may impact our business, such as delaying
payments, reducing reimbursement, restricting coverage eligibility, service coverage restrictions and imposing
taxes on our services.
From time to time, the federal government has considered whether competitive bidding can be used to
provide clinical testing services for Medicare beneficiaries at attractive rates while maintaining quality and access
to care. In 2008, Congress enacted legislation that eliminated a proposed competitive bidding demonstration
project for clinical testing services. State governments also have considered from time to time whether to apply
competitive bidding to clinical testing services. The industry remains concerned about the potential use of
competitive bidding for clinical testing services and believes that the quality of services and access to those
services could be adversely impacted by implementation of competitive bidding. If competitive bidding were
implemented on a regional or national basis for clinical testing, it could materially adversely affect us.
We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization
of clinical test services will continue. These efforts, including changes in law or regulations, may have a material
adverse impact on our business.
Healthcare plans have taken steps to control the utilization and reimbursement of healthcare services,
including clinical test services.
We also face efforts by non-governmental third party payers, including healthcare plans, to reduce utilization
and reimbursement for clinical testing services.
The healthcare industry has experienced a trend of consolidation among healthcare insurance plans, resulting
in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with
healthcare providers, including clinical laboratories. These healthcare plans, and independent physician
associations, may demand that clinical laboratories accept discounted fee structures or assume all or a portion of
the financial risk associated with providing testing services to their members through capitated payment
arrangements. In addition, some healthcare plans have been willing to limit the PPO or POS laboratory network
to only a single national laboratory to obtain improved fee-for-service pricing. There are also an increasing
number of patients enrolling in consumer driven products and high deductible plans that involve greater patient
cost-sharing.
The increased consolidation among healthcare plans also has increased the potential adverse impact of
ceasing to be a contracted provider with any such insurer.
We expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce
utilization of clinical test services. These efforts, including future changes in third-party payer rules, practices and
policies, or ceasing to be a contracted provider to a healthcare plan, may have a material adverse effect on our
business.
Business development activities are inherently risky, and integrating our operations with businesses we
acquire may be difficult and, if unsuccessfully executed, may have a material adverse effect on our
business.
We plan selectively to enhance our business from time to time through business development activities, such
as strategic acquisitions, licensing, investments and alliances. However, these plans are subject to the availability
of appropriate opportunities and competition from other companies seeking similar opportunities. Moreover, the
success of any such effort may be affected by a number of factors, including our ability to properly assess and
22