Quest Diagnostics 2012 Annual Report Download - page 19

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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 diagnostic testing 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.
As an integral part of our billing compliance program, we investigate reported failures or suspected failures to comply
with federal and state healthcare reimbursement requirements. Any Medicare or Medicaid overpayments resulting from non-
compliance are reimbursed by us. As a result of these efforts, we have periodically identified and reported overpayments,
reimbursed the payers for overpayments and taken appropriate corrective action.
We believe that most of our bad debt expense is primarily the result of missing or incorrect billing information on
requisitions and Advance Beneficiary Notices received from healthcare providers and the failure of patients to pay the portion
of the receivable that is their responsibility, rather than credit related issues. Deteriorating economic conditions may adversely
impact our bad debt expense. In general, due to the potentially critical nature of our services, we perform the requested testing
and report test results regardless of whether the billing information is correct or complete. We subsequently attempt to contact
the healthcare provider or patient to obtain any missing information and to rectify incorrect billing information. Missing or
incorrect information on requisitions complicates and slows down the billing process, creates backlogs of unbilled requisitions
and generally increases the aging of accounts receivable and bad debt expense. The increased use of electronic ordering reduces
the incidence of missing or incorrect information.
Government Coverage and Reimbursements. Government payers, such as Medicare and Medicaid, have taken steps
and can be expected to continue to take steps to control the cost, utilization and delivery of healthcare services, including
clinical test services. For example, Medicare has adopted policies under which it does not pay for many commonly ordered
clinical tests unless the ordering physician has provided an appropriate diagnosis code supporting the medical necessity of the
test. Physicians are required by law to provide diagnostic information when they order clinical tests for Medicare and Medicaid
patients.
The healthcare industry has experienced significant changes in reimbursement practices during the past several years.
Historically, many different local carriers administered Medicare Part B, which covers services provided by commercial
clinical laboratories. They often had inconsistent policies, increasing the complexity of the billing process for clinical testing
services providers. They are being replaced with contractors who will administer both Part B and Medicare Part A benefits for
beneficiaries in larger regional areas. It is expected that the revised system will reduce the administrative complexity of billing
for services provided to Medicare beneficiaries.
With regard to the clinical testing services performed on behalf of Medicare beneficiaries, we must bill the Medicare
program directly and must accept the carrier's fee schedule amount for covered services as payment in full. In addition, state
Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than Medicare. Currently,
Medicare does not require the beneficiary to pay a co-payment for diagnostic information services reimbursed under the
Clinical Laboratory Fee Schedule, but generally does require co-payments for anatomic pathology services. Certain Medicaid
programs require Medicaid recipients to pay co-payment amounts for diagnostic information services.
Part B of the Medicare program contains fee schedule payment methodologies for clinical testing services performed
for covered patients, including a national ceiling on the amount that carriers could pay under their local Medicare clinical
testing fee schedules. The Medicare Clinical Laboratory Fee Schedule for 2013 is decreased by 2.95% (excluding
sequestration) from 2012 levels. In December 2012, Congress delayed by one year a potential decrease of approximately 26%
in the physician fee schedule that otherwise would have become effective January 1, 2013, but implemented relative value unit
changes significantly impacting physician fee schedule reimbursement for tissue biopsies that are expected to reduce
reimbursement for tissue biopsy services. Also, an additional 2% reduction in the Medicare Clinical Laboratory Fee Schedule
for 2013, associated with sequestration, was delayed until April 1, 2013. The following table sets forth the percentage of our
consolidated net revenues reimbursed under Medicare attributable to the clinical testing and physician fee schedules in 2012.