LabCorp 2012 Annual Report Download - page 46

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Many of the claims and legal actions against the Company
are at preliminary stages, and many of these cases seek
an indeterminate amount of damages. The Company records
an aggregate legal reserve, which is determined using
actuarial calculations around historical loss rates and
assessment of trends experienced in settlements and
defense costs. In accordance with ASC 450 “Contingencies,”
the Company establishes reserves for judicial, regulatory,
and arbitration matters outside the aggregate legal reserve
if and when those matters present loss contingencies that
are both probable and estimable and would exceed the
aggregate legal reserve. When loss contingencies are not
both probable and estimable, the Company does not
establish separate reserves.
The Company is unable to estimate a range of reasonably
probable loss for cases described in more detail below in
which damages either have not been specified or, in the
Company’s judgment, are unsupported and/or exaggerated
and (i) the proceedings are in early stages; (ii) there is
uncertainty as to the outcome of pending appeals or motions;
(iii) there are significant factual issues to be resolved; and/or
(iv) there are novel legal issues to be presented. For these
cases, however, the Company does not believe, based on
currently available information, that the outcomes of these
proceedings will have a material adverse effect on the
Company’s financial condition, though the outcomes could
be material to the Company’s operating results for any
particular period, depending, in part, upon the operating
results for such period.
As previously reported, the Company reached a settle-
ment in the previously disclosed lawsuit, California ex rel.
Hunter Laboratories, LLC et al. v. Quest Diagnostics
Incorporated, et al. (“Hunter Labs Settlement Agreement”),
to avoid the uncertainty and costs associated with prolonged
litigation. Pursuant to the executed settlement agreement,
the Company recorded a litigation settlement expense of
$34.5 in the second quarter of 2011 (net of a previously
recorded reserve of $15.0) and paid the settlement amount
of $49.5 in the third quarter of 2012. The Company also
agreed to certain reporting obligations regarding its pricing
for a limited time period and, at the option of the Company
in lieu of such reporting obligations, to provide Medi-Cal
with a discount from Medi-Cal’s otherwise applicable
maximum reimbursement rate from November 1, 2011
through October 31, 2012. In June of 2012, the California
legislature enacted Assembly Bill No. 1494, Section 9 of
which directs the Department of Health Care Services
(“DHCS”) to establish new reimbursement rates for
Medi-Cal clinical laboratory services that will be based on
payments made to California clinical laboratories for similar
services by other third-party payors. With stakeholder input,
DHCS has proposed data elements and a format for labora-
tories to report payment data from comparable third-party
payors by March 29, 2013. After reviewing the submitted
data, DHCS will propose new reimbursement rates and
solicit stakeholder input before their implementation. The
bill provides that until the new rates are set through this
process, Medi-Cal payments for clinical laboratory services
will be reduced (in addition to a 10% payment reduction
imposed by statute in 2011) by “up to 10 percent” for tests
with dates of service on or after July 1, 2012, with a cap on
payments set at 80% of the lowest maximum allowance
established under the federal Medicare program. Under
the terms of the Hunter Labs Settlement Agreement, the
enactment of this new California legislation terminates the
Company’s reporting obligations (or obligation to provide a
discount in lieu of reporting) under that agreement. Taken
together, these changes are not expected to have a material
impact on the Company’s consolidated revenues or results
of operations.
As previously reported, the Company responded to an
October 2007 subpoena from the United States Department
of Health & Human Services Office of Inspector General’s
regional office in New York. On August 17, 2011, the Southern
District of New York unsealed a False Claims Act lawsuit,
United States of America ex rel. NPT Associates v. Labora-
tory Corporation of America Holdings, which alleges that the
Company offered UnitedHealthcare kickbacks in the form
of discounts in return for Medicare business. The lawsuit
seeks actual and treble damages and civil penalties for each
alleged false claim, as well as recovery of costs, attorney’s
fees, and legal expenses. The United States government has
not intervened in the lawsuit. The Company will vigorously
defend the lawsuit.
In addition, the Company has received three other
subpoenas since 2007 related to Medicaid billing. In
June 2010, the Company received a subpoena from the
State of Florida Office of the Attorney General requesting
documents related to its billing to Florida Medicaid. In
February 2009, the Company received a subpoena from the
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements