Quest Diagnostics 2012 Annual Report Download - page 27

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The American Medical Association CPT® Editorial Panel is continuing its process of establishing analyte specific
billing codes to replace codes that describe procedures used in performing molecular testing. The 2012 CPT manual adopted
approximately 100 of such codes. The 2013 CPT manual adopted additional codes and there are now CPT codes covering over
300 molecular tests. While CMS deferred adoption of the 2012 molecular codes until January 2013, a handful of commercial
health plans implemented them in 2012. The adoption of analyte specific codes will allow payers to better determine tests
being performed. This could lead to limited coverage decisions or payment denials. Further, in late 2012, CMS delegated the
payment level determination for the new codes to the Medicare contractors. Currently, some contractors are beginning to issue
payment and coverage decisions, but the payment levels and the methodology for determining how payment will be determined
by CMS and commercial health plans still remains largely unresolved. If reimbursement levels for the new codes do not
recognize the value of the molecular genetic testing 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.
Health plans have taken steps to control the utilization and reimbursement of health services, including clinical testing
services.
We also face efforts by non-governmental third party payers, including health plans, to reduce utilization and
reimbursement for clinical testing services.
The healthcare industry has experienced a trend of consolidation among health 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 health 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 health 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
health 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 health 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 health 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 health 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
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 has different systems, processes, policies and
cultures. Integration of acquisitions involves a number of risks including the diversion of management's attention to the
assimilation of the operations of businesses we have acquired, difficulties in the integration of operations and systems and the
realization of potential operating synergies, the assimilation and retention of the personnel of the acquired companies,
challenges in retaining the customers of the combined businesses, and potential adverse effects on operating results. The
process of combining companies may be disruptive to our businesses and may cause an interruption of, or a loss of momentum
in, such businesses as a result of the following difficulties, among others:
• loss of key customers or employees;
• difficulty in standardizing information and other systems;