Quest Diagnostics 2012 Annual Report Download - page 55

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Approximately 4% of our DIS net revenues are reimbursed under capitated payment arrangements, in which case the
healthcare insurers typically reimburse us in the same month services are performed, essentially giving rise to no outstanding
accounts receivable at month-end. If any capitated payments are not received on a timely basis, we determine the cause and
make a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and if so,
would reserve accordingly.
Government payers
Payments for diagnostic testing services made by the government are based on fee schedules set by governmental
authorities. Receivables due from government payers under the Medicare and Medicaid programs represent approximately 16%
of our DIS net accounts receivable. Collection of such receivables is normally a function of providing the complete and correct
billing information within the various filing deadlines. Collection typically occurs within 30 days of billing. Our processes for
billing, collecting and estimating uncollectible amounts for receivables due from government payers, as well as the risk of non-
collection, are similar to those noted above for healthcare insurers under negotiated fee-for-service arrangements.
Client payers
Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed based on a
negotiated fee schedule. Receivables due from client payers represent approximately 39% of our DIS net accounts receivable.
Credit risk and ability to pay are more of a consideration for these payers than healthcare insurers and government payers. We
utilize a standard approach to establish allowances for doubtful accounts for such receivables, which considers the aging of the
receivables and results in increased allowance requirements as the aging of the related receivables increase. Our approach also
considers specific account reviews, historical collection experience and other factors.
Patients
Patients are billed based on established patient fee schedules, subject to any limitations on fees negotiated with
healthcare insurers or physicians on behalf of their patients. Receivables due from patients represent approximately 21% of our
DIS net accounts receivable. Collection of receivables due from patients is subject to credit risk and ability of the patients to
pay. We utilize a standard approach to establish allowances for doubtful accounts for such receivables, which considers the
aging of the receivables and results in increased allowance requirements as the aging of the related receivables increases. Our
approach also considers historical collection experience and other factors. Patient receivables are generally fully reserved for
when the related billing reaches 210 days outstanding. Balances are automatically written off when they are sent to collection
agencies. Reserves are adjusted for estimated recoveries of amounts sent to collection agencies based on historical collection
experience, which is regularly monitored.
Reserves for general and professional liability claims
As a general matter, providers of diagnostic 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 our client base and reputation. We maintain various liability insurance coverages for claims that
could result from providing, or failing to provide, diagnostic testing services, including inaccurate testing results, and other
exposures. Our insurance coverage limits our maximum exposure on individual claims; however, we are essentially self-insured
for a significant portion of these claims. While the basis for claims reserves considers actuarially determined losses based upon
our historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to
these types of claims involves a high degree of judgment. Changes in the facts and circumstances associated with claims could
have a material impact on our results of operations, principally costs of services, and cash flows in the period that reserve
estimates are revised or paid. Although we believe that our present reserves and insurance coverage are sufficient to cover
currently estimated exposures, it is possible that we may incur liabilities in excess of our recorded reserves or insurance
coverage.
Reserves for other legal proceedings
Our businesses are subject to or impacted by extensive and frequently changing laws and regulations, including
inspections and audits by governmental agencies, in the United States (at both the federal and state levels), and the other
jurisdictions in which we conduct business. Although we believe that we are in compliance, in all material respects, with
applicable laws and regulations, there can be no assurance that a regulatory agency would not reach a different conclusion.
Any noncompliance by us with applicable laws and regulations could have a material adverse effect on our results of
operations. In addition, these laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial