Quest Diagnostics 2011 Annual Report Download - page 20

We participate in external proficiency testing and have accreditation or licenses for our clinical laboratory
operations from various regulatory agencies or accrediting organizations, such as the Centers for Medicare and
Medicaid Services (“CMS”), the College of American Pathologists (“CAP”) and certain states. All of our
laboratories participate in various external quality surveillance programs. They include, but are not limited to,
proficiency testing programs administered by CAP, as well as some state agencies. CAP is an independent,
nongovernmental organization of board-certified pathologists approved by CMS to inspect clinical laboratories to
determine compliance with the standards required by CLIA. CAP offers an accreditation program to which
laboratories may voluntarily subscribe. All of our major regional and esoteric laboratories, including our facility
in India, and most of our rapid response laboratories, are accredited by CAP. Accreditation includes on-site
inspections and participation in the CAP (or equivalent) proficiency testing program. Also, all of our
cytotechnologists and pathologists participate in an individual proficiency testing program.
Our diagnostic products businesses maintain extensive quality assurance programs focused on ensuring that
our products are safe and effective and that we comply with applicable regulatory requirements in the United
States and other countries. They are regulated by the FDA and are required to be in compliance with the Quality
Systems Regulations, 21 CFR part 820, and with applicable standards outside the United States. In addition, our
manufacturing sites are certified in accordance with, or audited by the deemed authority for, ISO 13485: 2003
standards. We endeavor to design and manufacture our diagnostics products in compliance with Quality Systems
Regulations.
Intellectual Property Rights. We own significant intellectual property, including patents, patent applications,
technology, trade secrets, know-how, copyrights and trademarks in the United States and other countries. From
time to time, we also license U.S. and non-U.S. patents, patent applications, technology, trade secrets, know-how,
copyrights or trademarks owned by others. In the aggregate, these intellectual property assets and licenses are of
material importance to our business. We believe, however, that no single patent, technology, trademark,
intellectual property asset or license is material to our business as a whole.
Our approach is to manage our intellectual property assets to safeguard them and to maximize their value to
our enterprise. We generally actively defend our intellectual property assets and pursue protection of our
products, processes and other intellectual property where possible.
Our success in remaining a leading innovator in the diagnostic testing industry by continuing to introduce
new tests, technology and services will depend, in part, on our ability to license new and improved technologies
on favorable terms. Other companies or individuals, including our competitors, may obtain patents or other
property rights on tests or processes that we may be performing, particularly in such emerging areas as gene-
based testing and other specialty testing, that could prevent, limit or interfere with our ability to develop, perform
or sell our tests or operate our business.
Employees. At December 31, 2011, we employed approximately 42,000 people. This total excludes
employees of the joint ventures where we do not have a majority ownership interest. We have no collective
bargaining agreements with unions covering employees in the United States, and we believe that our overall
relations with our employees are good.
BILLING AND REIMBURSEMENT
Billing. We generally bill for clinical testing services on a fee-for-service basis under one of two types of
fee schedules. These fees may be negotiated or discounted. The types of fee schedules are:
•“Client” fees charged to physicians, hospitals, and institutions for which a clinical laboratory performs
testing services on a wholesale basis and which are billed on a monthly basis.
•“Patient” fees charged to individual patients and certain third-party payers on a claim-by-claim basis.
Billing for clinical testing services is very complicated, and we maintain compliance policies and procedures
for our billing. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups all
have different billing requirements. Some billing arrangements require us to bill multiple payers, and there are
several other factors that complicate billing (e.g., disparity in coverage and information requirements among
various payers; and incomplete or inaccurate billing information provided by ordering physicians). We incur
additional costs as a result of our participation in Medicare and Medicaid programs because clinical laboratory
testing and anatomic pathology services are subject to complex, stringent and frequently ambiguous federal and
state laws and regulations, including those relating to coverage, billing and reimbursement. Changes in laws and
regulations could further complicate our billing and increase our billing expense. CMS establishes procedures and
continuously evaluates and implements changes to the reimbursement process and requirements for coverage.
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