Quest Diagnostics 2011 Annual Report Download - page 29

From time to time, the federal government has considered whether competitive bidding can be used to
provide clinical testing services for Medicare beneficiaries at attractive rates while maintaining quality and access
to care. If competitive bidding were implemented on a regional or national basis for clinical testing, it could
materially adversely affect us. During 2011, Congress considered several cost-saving initiatives as part of its
deficit reduction discussions. These initiatives included coinsurance for clinical laboratory services, co-payments
for clinical laboratory tests and further laboratory fee schedule reductions. If any of these initiatives were
implemented, it could materially affect us.
The American Medical Association CPT威Editorial Panel is continuing its process of establishing analyte
specific billing codes to replace codes that describe procedures used in performing molecular tests. The 2012
CPT manual adopts approximately 100 of such codes and, it is anticipated that such codes will eventually cover
hundreds of molecular tests. While CMS has deferred adoption of the new molecular codes until 2013, a handful
of commercial health plans are implementing them. The adoption of analyte specific codes will allow payors to
better determine tests being performed. This could lead to limited coverage decisions or payment denials. Further,
payment levels for the new codes or even the methodology for determining how payment will be determined
remains unresolved. If reimbursement levels for the new codes do not recognize the value of the molecular
genetic tests we perform, our revenues and earnings could be adversely impacted.
We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization
of clinical test services will continue. These efforts, including changes in law or regulations, may have a material
adverse impact on our business.
Healthcare plans have taken steps to control the utilization and reimbursement of healthcare services,
including clinical test services.
We also face efforts by non-governmental third party payers, including healthcare plans, to reduce utilization
and reimbursement for clinical testing services.
The healthcare industry has experienced a trend of consolidation among healthcare insurance plans, resulting
in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with
healthcare providers, including clinical testing providers. These healthcare plans, and independent physician
associations, may demand that clinical testing providers accept discounted fee structures or assume all or a
portion of the financial risk associated with providing testing services to their members through capitated
payment arrangements. In addition, some healthcare plans have been willing to limit the PPO or POS laboratory
network to only a single national laboratory to obtain improved fee-for-service pricing. Some healthcare plans
also are considering steps such as requiring preauthorization of testing. There are also an increasing number of
patients enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing.
The increased consolidation among healthcare plans also has increased the potential adverse impact of
ceasing to be a contracted provider with any such insurer. The 2010 federal healthcare reform legislation includes
provisions, including ones regarding the creation of healthcare exchanges, that may encourage healthcare
insurance plans to increase exclusive contracting.
We expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce
utilization of clinical test services. These efforts, including future changes in third-party payer rules, practices and
policies, or ceasing to be a contracted provider to a healthcare plan, may have a material adverse effect on our
business.
Business development activities are inherently risky, and integrating our operations with businesses we
acquire may be difficult and, if unsuccessfully executed, may have a material adverse effect on our
business.
We plan selectively to enhance our business from time to time through business development activities, such
as strategic acquisitions, licensing, investments and alliances. However, these plans are subject to the availability
of appropriate opportunities and competition from other companies seeking similar opportunities. Moreover, the
success of any such effort may be affected by a number of factors, including our ability to properly assess and
value the potential business opportunity, and to integrate it into our business. The success of our strategic
alliances depends not only on our contributions and capabilities, but also on the property, resources, efforts and
skills contributed by our strategic partners. Further, disputes may arise with strategic partners, due to conflicting
priorities or conflicts of interests.
Each acquisition involves the integration of a separate company that was previously operated independently
and has different systems, processes, policies and cultures. Integration of acquisitions involves a number of risks
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