Quest Diagnostics 2010 Annual Report Download - page 34

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Location Leased or Owned
Cypress, California (laboratory) . . ..................... Leased
West Hills, California (laboratory)..................... Leased
San Juan Capistrano, California (laboratory) ........... Owned
Tampa, Florida (laboratory) ........................... Owned
Atlanta, Georgia (laboratory) .......................... Owned
Chicago, Illinois (2) (laboratories) ..................... One owned, one leased
Baltimore, Maryland (laboratory) . ..................... Owned
Teterboro, New Jersey (laboratory) .................... Owned
Philadelphia, Pennsylvania (laboratory) ................ Leased
Norristown, Pennsylvania (offices)..................... Leased
Dallas, Texas (laboratory)............................. Leased
Chantilly, Virginia (laboratory) . . . ..................... Leased
Item 3. Legal Proceedings
In addition to the matters described below, in the normal course of business, we have been named, from
time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation,
arising in connection with our activities as a provider of diagnostic testing, information and services. These legal
actions may include lawsuits alleging negligence or other similar legal claims. These actions could involve claims
for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could
have an adverse impact on our client base and reputation.
We are also involved, from time to time, in other reviews, investigations and proceedings by governmental
agencies regarding our business, including, among other matters, operational matters, certain of which may result
in adverse judgments, settlements, fines, penalties, injunctions or other relief. The number of these reviews,
investigations and proceedings has increased in recent years with regard to many firms in the healthcare services
industry, including our Company.
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.
We contest liability or the amount of damages as appropriate in each pending matter. In view of the
inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek
substantial or indeterminate damages or where investigations or proceedings are in the early stages, we cannot
predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be
resolved, when they ultimately will be resolved, or what the eventual settlement, fine, penalty or other relief, if
any, might be. Subject to the foregoing, we believe, based on current knowledge, that the outcome of pending
matters will not have a material adverse effect on our consolidated financial condition, although the outcome of
such matters could be material to our results of operations and cash flows in the period that such matters are
determined or paid.
In 2006 and 2008, the Company and several of its subsidiaries received subpoenas from the California
Attorney General’s Office seeking documents relating to the Company’s billings to MediCal, the California
Medicaid program. The Company cooperated with the government’s requests. Subsequently, the State of
California intervened as plaintiff in a civil lawsuit, California ex rel. Hunter Laboratories, LLC v. Quest
Diagnostics Incorporated, et al. (the “California Lawsuit”), filed in California Superior Court against a number of
clinical laboratories, including the Company and several of its subsidiaries. The complaint was originally filed by
a competitor laboratory in California under the whistleblower provisions of the California False Claims Act. The
complaint was unsealed on March 20, 2009.
The complaint alleges that, among other things, the Company overcharged MediCal for testing services and
violated the California False Claims Act. Violations of this statute and related regulations could lead to an
injunction, fines or penalties, and exclusion from MediCal, as well as claims by third parties.
In the third quarter of 2010, the California Department of Health Care Services (the “Department”)
conducted an audit of the Company’s billing to MediCal. The Department contends that the Company’s billings
are not consistent with applicable California regulations, as currently interpreted by the Department. While the
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