Quest Diagnostics 2008 Annual Report Download - page 59

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 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 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 Notes 14 and 15 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 our 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 consider all available facts and circumstances
to estimate and record the amounts to be reimbursed. While we have reimbursed these overpayments and have
taken corrective action where appropriate, the government may not in each instance accept these actions as
sufficient.
The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves
a high degree of judgment. Management has established reserves for legal proceedings in accordance with
generally accepted accounting principles. Changes in facts and circumstances related to such proceedings could
lead to significant revisions to reserve estimates for such matters and could have a material impact on our results
of operations, cash flows and financial condition in the period that reserve estimates are revised or paid.
Accounting for and recoverability of goodwill
Goodwill is our single largest asset. We evaluate the recoverability and measure the potential impairment of
our goodwill under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets.” The annual impairment test is a two-step process that begins with the estimation of the fair
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