Quest Diagnostics 2009 Annual Report Download - page 22

We also have joint venture arrangements with leading integrated healthcare delivery networks in several
metropolitan areas. These joint venture arrangements, which provide testing for affiliated hospitals as well as for
unaffiliated physicians and other local healthcare providers, serve as our principal laboratory facilities in their
service areas. Typically, we have either a majority ownership interest in, or day-to-day management
responsibilities for, our hospital joint venture relationships.
Employers. Employers use clinical tests for drugs-of-abuse to determine an individual’s employability and his
or her “fitness for duty.” Companies with high turnover, safety conscious environments or regulatory testing
requirements provide the highest volumes of testing. Factors such as the general economy and job market can
impact the utilization of drugs-of-abuse testing. We seek to grow our employer volumes through offering new
and innovative programs to help companies with their goal of maintaining a safe and productive workplace. We
also offer employers our Blueprint for Wellness program, providing wellness screening and analytic services to
employers, to help employers and their employees manage increasing healthcare costs and to capitalize on trends
in personalized health.
Other Laboratories and Other Customers. We also provide testing services to federal, state and local
governmental agencies and perform esoteric testing services for commercial clinical laboratories that do not have
a full range of testing capabilities. These customers are charged on a fee-for-service basis.
GENERAL
Competition. While there has been significant consolidation in the clinical testing industry in recent years,
our industry remains fragmented and highly competitive. We primarily compete with three types of clinical
testing providers: hospital-affiliated laboratories, other commercial clinical laboratories and physician-office
laboratories. Our largest commercial clinical laboratory competitor is Laboratory Corporation of America
Holdings, Inc. In addition, we compete with many smaller regional and local commercial clinical laboratories,
specialized esoteric laboratories and laboratories owned by physicians and hospitals. In anatomic pathology,
additional competitors include anatomic pathology practices, including those in academic institutions. In addition,
there has been a trend among specialty physician practices to bring pathologists into those practices, thereby
reducing referrals from those practices.
We believe that healthcare providers traditionally consider a number of factors when selecting a testing
provider, including:
•service capability and quality;
•accuracy, timeliness and consistency in reporting test results;
•pricing;
•patient insurance coverage;
•number and type of tests performed by the provider;
•number, convenience and geographic coverage of patient service centers;
•reputation in the medical community;
•healthcare information technology solutions;
•qualifications of its staff; and
•ability to develop new and useful tests.
We believe that we are an effective competitor in each of these areas. We also believe that offering the
most comprehensive test menu in the industry, innovative test and information technology offerings, a superior
patient experience, Six Sigma quality and unparalleled access and distribution, provides us with a competitive
advantage that enables us to compete on more than price alone.
We believe that large commercial clinical laboratories may be able to increase their share of the overall
clinical testing market due to their large service networks and lower cost structures. These advantages should
enable larger clinical laboratories to more effectively serve large customers and members of large healthcare
plans. In addition, we believe that consolidation in the clinical testing industry will continue. However, a
significant portion of clinical testing is likely to continue to be performed by hospitals, which generally have
affiliations with community physicians that refer testing to us. As a result of these affiliations, we compete
against hospital-affiliated laboratories primarily on the basis of service capability and quality as well as other
non-pricing factors. Our failure to provide service superior to hospital-affiliated laboratories and other laboratories
could have a material adverse effect on our net revenues and profitability. In addition, recent market activity,
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