Quest Diagnostics 2013 Annual Report Download - page 27

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Item 1A. Risk Factors
You should carefully consider all of the information set forth in this Report, including the following risk factors,
before deciding to invest in any of our securities. The risks below are not the only ones that we face. Additional risks not
presently known to us, or that we presently deem immaterial, may also negatively impact us. Our business, financial condition,
results of operations or cash flows could be materially impacted by any of these factors.
U.S. healthcare reform legislation may result in significant changes, and our business could be adversely impacted if we
fail to adapt.
Government oversight of and attention to the healthcare industry in the United States is significant and increasing. In
March 2010, U.S. federal legislation was enacted to reform healthcare. The legislation provides for reductions in the Medicare
clinical laboratory fee schedule of 1.75% for five years beginning in 2011 and also includes a productivity adjustment that
reduces the CPI market basket update beginning in 2011. The legislation imposes an excise tax on the seller for the sale of
certain medical devices in the United States, including those purchased and used by laboratories. The legislation establishes the
Independent Payment Advisory Board, which will be responsible, beginning in 2014, annually to submit proposals aimed at
reducing Medicare cost growth while preserving quality. These proposals automatically will be implemented unless Congress
enacts alternative proposals that achieve the same savings targets. Further, the legislation calls for a Center for Medicare and
Medicaid Innovation that will examine alternative payment methodologies and conduct demonstration programs. The
legislation provides for extensive health insurance reforms, including the elimination of pre-existing condition exclusions and
other limitations on coverage, fixed percentages on medical loss ratios, expansion in Medicaid and other programs, employer
mandates, individual mandates, creation of state and regional health insurance exchanges, and tax subsidies for individuals to
help cover the cost of individual insurance coverage. The legislation also permits the establishment of accountable care
organizations. While the ultimate impact of the legislation on the healthcare industry is unknown, it is likely to be extensive and
may result in significant change. Our failure to adapt to these changes could have a material adverse effect on our business.
The clinical testing business is highly competitive, and if we fail to provide an appropriately priced level of service or
otherwise fail to compete effectively it could have a material adverse effect on our revenues and profitability.
The clinical testing business remains a fragmented and highly competitive industry. We primarily compete with three
types of clinical testing providers: other commercial clinical laboratories, hospital-affiliated laboratories and physician-office
laboratories. We also compete with other providers, including anatomic pathology practices and large physician group
practices. Hospitals generally maintain on-site laboratories to perform testing on their patients (inpatient or outpatient). In
addition, many hospitals compete with commercial clinical laboratories for outreach (non-hospital patients) testing. Hospitals
may seek to leverage their relationships with community physicians and encourage the physicians to send their outreach testing
to the hospital's laboratory. In addition, hospitals that own physician practices may require the practices to refer testing to the
hospital's laboratory. In recent years, there has been a trend of hospitals acquiring physician practices, and as a result, an
increased percentage of physician practices are owned by hospitals. As a result of this affiliation between hospitals and
community physicians, we compete against hospital-affiliated laboratories primarily based on quality and scope of service as
well as pricing. Increased hospital acquisitions of physician practices enhance physician ties to hospital-affiliated laboratories
and may strengthen their competitive position. Our failure to provide a broad test menu or services or pricing superior to
hospital-affiliated laboratories and other laboratories could have a material adverse effect on our business.
The diagnostic information services industry also is faced with changing technology and new product introductions.
Competitors may compete using advanced technology, including technology that enables more convenient or cost-effective
testing. Competitors also may offer testing to be performed outside of a commercial clinical laboratory, such as (1) point-of-
care testing that can be performed by physicians in their offices; (2) complex testing that can be performed by hospitals in their
own laboratories; and (3) home testing that can be carried out without requiring the services of outside providers.
If we fail to compete effectively, our business could be adversely affected and our revenues and profitability could be
damaged.
This Report also includes forward-looking statements that involve risks or uncertainties. Our results could differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face
described below and elsewhere. See “Cautionary Factors that May Affect Future Results” on page 31.