Quest Diagnostics 2008 Annual Report Download - page 36

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be finalized, or as to its terms. If a settlement is not finalized, the Company would defend itself and NID and
could incur significant costs in doing so.
Any settlement is expected to include a corporate integrity agreement which may adversely impact our
business operations and increase our costs.
The Company has established a reserve reflected in discontinued operations of $316 million in connection
with these claims. The reserve reflects the Company’s current estimate of the expected probable loss with respect
to these matters, assuming the settlement is finalized. If a settlement is not finalized, the eventual losses related
to these matters could be materially different than the amount reserved and could be material to the Company’s
results of operations, cash flows and financial condition in the period that such matters are determined or paid.
We are subject to numerous legal and regulatory requirements governing our activities, and we may face
substantial fines and penalties, and our business activities may be impacted, if we fail to comply.
Our business is subject to or impacted by extensive and frequently changing laws and regulations in the
United States (including at both the federal and state levels), and the other jurisdictions in which we engage in
business. While we seek to conduct our business in compliance with all applicable laws, many of the laws and
regulations applicable to us are vague or indefinite and have not been interpreted by the courts, including those
relating to:
•billing and reimbursement of clinical tests;
•certification of clinical laboratories;
•the anti-self-referral and anti-kickback laws and regulations;
•the laws and regulations administered by the U.S. Food and Drug Administration;
•the corporate practice of medicine;
•operational, personnel and quality requirements intended to ensure that clinical testing services are
accurate, reliable and timely;
•physician fee splitting;
•relationships with physicians and hospitals;
•safety and health of laboratory employees; and
•handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive
materials.
These laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority
in a manner that could require us to make changes in our operations, including our pricing and/or billing
practices. We may not be able to maintain, renew or secure required permits, licenses or any other regulatory
approvals needed to operate our business or commercialize our products. If we fail to comply with applicable
laws and regulations, or if we fail to maintain, renew or obtain necessary permits, licenses and approvals, we
could suffer civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs
and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur
additional liabilities from third party claims. If any of the foregoing were to occur, our reputation could be
damaged, important business relationships with third parties could be adversely affected and it could have a
material adverse effect on our business.
We regularly receive requests for information, and occasionally subpoenas, from governmental authorities.
We also are subject from time to time to qui tam claims brought by former employees or other “whistle
blowers.” The federal and state governments continue to strengthen their position and scrutiny over healthcare
fraud. In addition, legislative provisions relating to healthcare fraud and abuse provide federal enforcement
personnel substantially increased funding, powers and remedies to pursue suspected fraud and abuse. The
government has substantial leverage in negotiating settlements since the amount of potential damages far exceeds
the rates at which we are reimbursed for our products and services, and the government has the remedy of
excluding a non-compliant provider from participation in the Medicare and Medicaid programs, which represented
approximately 18% of our net revenues for the year ended December 31, 2008. Regardless of merit or eventual
outcome, these types of investigations and related litigation can result in:
•diversion of management time and attention;
•expenditure of large amounts of cash on legal fees, costs and payment of damages;
•limitations on our ability to continue some of our operations;
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