LabCorp 2007 Annual Report Download - page 22

20 Laboratory Corporation of America® Holdings 2007
GENERAL
During 2007, the Company continued to strengthen its fi nancial
performance through the implementation of the Company’s strategic
plan and the expansion of its national platform in routine testing. This
plan continues to provide growth opportunities for the Company by
building a leadership position in genomic and other advanced testing
technologies primarily through internal development efforts, acquisi-
tions and technology licensing activities.
The Company recognizes the strategic value of managed care in
the industry and continues to have strong relationships with national
managed care organizations. On an exclusive and non-exclusive basis,
most major managed care organizations have re-contracted in 2007
for laboratory services with single or multi-year agreements.
Effective January 1, 2007, the Company commenced its success-
ful implementation of its ten-year agreement with United Healthcare
Insurance Company (“UnitedHealthcare”) and became its exclusive
national laboratory provider. Over a period of several years, the
Company will continue to perform more of UnitedHealthcare’s testing.
During the fi rst three years of the ten-year agreement, the Company
has committed to reimburse UnitedHealthcare up to $200 for transition
costs related to developing expanded networks in defi ned markets.
During 2007, approximately $38.3 of such transition payments were
billed to the Company by UnitedHealthcare and approximately $32.0
had been remitted by the Company.
During 2007 and the fourth quarter of 2006, the Company opened
over 400 new patient service centers and hired over 1,700 new service
positons to provide increased accessibility to the clients and patients
of UnitedHealthcare as well as all of the Company’s customer base.
By increasing its customer service access points and by working with
UnitedHealthcare to convert its members’ business over to LabCorp,
the Company believes that it has been able to reduce the amount of
UnitedHealthcare’s transition costs. Based on the preliminary trend
rates of the transition payment amounts billed by UnitedHealthcare
during 2007, the Company believes that its total reimbursement
commitment under this agreement will be approximately $115.0.
The Company is amortizing the total estimated transition costs over the
life of the contract. In addition, the Company invested approximately
$29.0 and $15.6 in capital projects relating to the United Healthcare
contract during 2007 and 2006, respectively.
During the second quarter of 2007, the Company executed a
multi-year clinical laboratory services contract renewal with CIGNA
HealthCare (“CIGNA”), whereby the Company will continue to be a
contracted laboratory provider in all CIGNA markets. Additionally,
effective January 1, 2008, the Company will no longer be contractually
restricted from marketing that it is a fully participating, in-network
provider to CIGNA for all services in all major markets.
Effective July 1, 2007, the Company became a non-participating
laboratory provider for Aetna Inc. (“Aetna”). However, the Company
has continued to accept and perform laboratory services for Aetna
patients and physicians in cases where the Company is the laboratory
of choice for Aetna members and physicians.
During 2007, the Company executed a fi ve-year agreement with
Humana, Inc. (“Humana”) which continues its relationship with the
Company and allows all of Humana’s members to have access to the
Company’s laboratory testing services in all of Humana’s markets.
With the Company’s expanding geographic base of customer
service locations, it will continue to focus on all of its other managed
care partners in order to achieve superior patient care at competitive
prices. Wellpoint, Inc. (“Wellpoint”) continues to be a valued partner and
the Company continues to work with Wellpoint on ways to expand the
parties’ national strategic relationship, including the Company’s com-
mitment to maximize the value of Wellpoint’s laboratory testing spend.
Effective January 1, 2008 the Company acquired additional
partnership units in its Ontario, Canada joint venture, bringing the
Company’s percentage interest owned up to 85.6%. Concurrent with
this acquisition, the terms of the joint venture’s partnership agreement
were amended. Based upon the amended terms of this agreement, the
Company began including the consolidated operating results, fi nancial
position and cash fl ows of the Ontario, Canada joint venture in the
Company’s consolidated fi nancial statements on January 1, 2008.
The amended joint venture’s partnership agreement also enables
the minority interest to put the remaining partnership units to the
Company in defi ned future periods, at an initial amount equal to the
consideration paid by the Company in 2008, and subject to adjustment
based on market value formulas contained in the agreement.
Seasonality
The majority of the Company’s testing volume is dependent on patient
visits to doctor’s offi ces and other providers of health care. Volume
of testing generally declines during the year-end holiday periods and
other major holidays. In addition, volume declines due to inclement
weather may reduce net revenues and cash fl ows. Therefore,
comparison of the results of successive quarters may not accurately
refl ect trends or results for the full year.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations (Dollars in millions)
Laboratory Corporation of America