Quest Diagnostics 2010 Annual Report Download - page 14

hospitals throughout the United States, including esoteric testing, in some cases helping manage their laboratories
and serving as the medical directors of the hospital’s histology or clinical laboratory. We believe that we are the
industry’s market leader in servicing hospitals. Hospitals generally continue to look for ways to fully utilize their
existing laboratory capacity: they perform tests their patients need and may compete with commercial laboratories
for outreach (non-hospital patients) testing. Continuing to obtain referrals from hospitals depends on our ability to
provide high quality services that are more cost-effective than if the hospitals were to perform the services
themselves. We believe that our combination of full-service, bi-coastal esoteric testing capabilities, medical and
scientific professionals available for consultation, innovative connectivity products, point-of-care testing products,
focus on Six Sigma quality and dedicated sales and service professionals has positioned us to be an attractive
partner for hospitals.
Most physicians have admitting privileges or other relationships with hospitals as part of their medical
practice. Many hospitals seek to leverage their relationships with community physicians by encouraging the
physicians to send their outreach testing to the hospital’s laboratory. In addition, hospitals that own physician
practices generally require the practices to refer tests to the hospital’s affiliated laboratory. Hospitals can have
greater leverage with health insurers than do commercial clinical laboratories, particularly hospitals that have a
significant market share; hospitals thus are frequently able to negotiate higher reimbursement rates with health
insurance plans than commercial clinical laboratories for comparable clinical testing services.
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 employee 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 establish their own histology laboratory capabilities
and/or bring pathologists into their practices, thereby reducing referrals from these 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;
•patient insurance coverage;
•number and type of tests performed;
•pricing;
•number, convenience and geographic coverage of patient service centers;
•reputation in the medical community;
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