Quest Diagnostics 2008 Annual Report Download - page 45

Company evaluated a number of strategic options for NID, and on April 19, 2006, decided to cease operations at
NID. Upon completion of the wind down of operations in the third quarter of 2006, the operations of NID were
classified as discontinued operations. During the third quarter of 2006, the government issued two additional
subpoenas, one to NID and one to the Company. The subpoenas covered various records, including records
related to tests and test kits in addition to PTH.
During the third quarter of 2007, the government and the Company began settlement discussions. In the
course of those discussions, the government disclosed to the Company certain of the government’s legal theories
regarding the amount of damages allegedly incurred by the government, which include alleged violations of civil
and criminal statutes including the False Claims Act and the Food, Drug and Cosmetics Act. Violations of these
statutes and related regulations could lead to a warning letter, injunction, fines or penalties, exclusion from
federal healthcare programs and/or criminal prosecution, as well as claims by third parties. During the third
quarter of 2008, the Company and the United States Attorney’s Office reached an agreement in principle to
resolve these claims. As part of the agreement, NID, which was closed in 2006, is expected to enter a guilty plea
to a single count of felony misbranding. The terms of the settlement are subject to the final negotiation and
execution of definitive agreements, which is expected to include a corporate integrity agreement, the approval by
the United States Department of Justice and the United States Department of Health and Human Services and
satisfactory resolution of related state claims. There can be no assurance, however, when or whether a settlement
may 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.
The Company has established a reserve of $316 million in connection with these claims through charges
reflected in discontinued operations. 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.
Other Matters.
During the second quarter of 2005, the Company received a subpoena from the United States Attorney’s
Office for the District of New Jersey. The subpoena seeks the production of business and financial records
regarding capitation and risk sharing arrangements with government and private payers for the years 1993 through
1999. Also, during the third quarter of 2005, the Company received a subpoena from the U.S. Department of
Health and Human Services, Office of the Inspector General. The subpoena seeks the production of various
business records including records regarding our relationship with health maintenance organizations, independent
physician associations, group purchasing organizations, and preferred provider organizations relating back to as
early as 1995. The Company is cooperating with the United States Attorney’s Office and the Office of the
Inspector General.
During the second quarter of 2006, each of the Company and its subsidiary, Specialty Laboratories, Inc.
(“Specialty”), received a subpoena from the California Attorney General’s Office. The subpoenas seek various
documents including documents relating to billings to MediCal, the California Medicaid program. The subpoenas
seek documents from various time frames ranging from three to ten years. During the third quarter of 2008, the
Company received a request for additional information. The Company and Specialty are cooperating with the
California Attorney General’s Office.
In the first quarter of 2008, the United States Department of Justice informally requested records from the
Company regarding AmeriPath’s billing practices for flow cytometry testing panels performed on blood, bone
marrow and lymph node specimens. The inquiry sought to determine whether AmeriPath may have billed for
laboratory tests that were not medically necessary. The Company cooperated fully with the inquiry. In December
2008, the government declined to intervene in the underlying qui tam complaint that led to the inquiry. Following
the government’s declination, the qui tam relator voluntarily dismissed his complaint.
We understand that there may be pending qui tam claims brought by former employees or other “whistle
blowers” as to which we cannot determine the extent of any potential liability. We also are aware of certain
pending individual or class action lawsuits related to billing practices filed under the qui tam provisions of the
civil False Claims Act and/or other federal and state statutes, regulations or other laws.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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