Quest Diagnostics 2011 Annual Report Download - page 107

In January 2012, a putative class action entitled Beery v. Quest Diagnostics Incorporated was filed in the
United States District Court for the District of New Jersey against the Company and a subsidiary, on behalf of
all female sales representatives employed by the defendants from February 17, 2010 to the present. The
complaint alleges that the defendants discriminate against these female sales representatives on account of their
gender, in violation of the federal civil rights and equal pay acts, and seeks, among other things, injunctive relief
and monetary damages.
In September 2009, the Company received a subpoena from the Michigan Attorney General’s Office seeking
documents relating to the Company’s pricing and billing practices as they relate to Michigan’s Medicaid program.
The Company cooperated with the requests. In January 2012, the State of Michigan intervened as a plaintiff in a
civil lawsuit, Michigan ex rel. Hunter Laboratories LLC v. Quest Diagnostics Incorporated, et al., filed in
Michigan Superior Court. The suit, originally filed by a competitor laboratory, alleges that the Company
overcharged Michigan’s Medicaid program.
In addition, the Company and certain of its subsidiaries have received subpoenas from state agencies in three
states and from the Office of the Inspector General of the U.S. Department of Health and Human Services which
seek documents relating to the Company’s billing practices. The Company is cooperating with the requests.
The federal or state governments may bring claims based on new theories as to the Company’s practices
which management believes to be in compliance with law. In addition, certain federal and state statutes, including
the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against
healthcare companies on behalf of government or private payers. The Company is aware of certain pending
individual or class action lawsuits, and has received several subpoenas, 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.
The Company understands that there may be other pending qui tam claims brought by former employees or other
“whistle blowers” as to which the Company cannot determine the extent of any potential liability.
Management cannot predict the outcome of such matters. Although management does not anticipate that the
ultimate outcome of such matters will have a material adverse effect on the Company’s financial condition, given
the high degree of judgment involved in establishing accruals for loss estimates related to these types of matters,
the outcome of such matters may be material to the Company’s results of operations or cash flows in the period
in which the impact of such matters is determined or paid.
Reserves for Legal Matters
These matters are in different stages. Some of these matters are in their early stages. Matters may involve
responding to and cooperating with various government investigations and related subpoenas. Reserves for legal
matters, primarily related to the California Lawsuit, totaled approximately $3 million and $10 million as of
December 31, 2011 and 2010, respectively. As of December 31, 2011, the Company does not believe that any
losses related to the other legal matters described above are probable. While the Company believes that a
reasonable possibility exists that losses may have been incurred related to the other legal matters described above,
based on the nature and status of these matters, potential losses, if any, cannot be estimated.
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 the Company’s client base and reputation. The Company
maintains various liability insurance coverages for, among other things, claims that could result from providing,
or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The
Company’s insurance coverage limits its maximum exposure on individual claims; however, the Company is
essentially self-insured for a significant portion of these claims. Reserves for such matters, including those
associated with both asserted and incurred but not reported claims, are established by considering actuarially
determined losses based upon the Company’s historical and projected loss experience. Such reserves totaled
approximately $127 million and $130 million as of December 31, 2011 and 2010, respectively. Management
believes that established reserves and present insurance coverage are sufficient to cover currently estimated
exposures. Management cannot predict the outcome of any claims made against the Company. Although
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(dollars in thousands unless otherwise indicated)