LabCorp 2013 Annual Report Download - page 48

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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 settle-
ments and defense costs. In accordance with FASB Accounting
Standards Codification Topic 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 contin-
gencies 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 settlement 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 payers. With stakeholder input, DHCS established
data elements and a format for laboratories to report payment data
from comparable third-party payers. After reviewing the submitted
data, DHCS will propose new reimbursement rates and solicit stake-
holder 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. Laboratory Corporation of America
Holdings, which alleges that the Company offered UnitedHealthcare
kickbacks in the form of discounts in return for Medicare business.
The Plaintiff’s third amended complaint further alleges that the
Company’s billing practices violated False Claims Acts in fourteen
states and the District of Columbia. 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. Neither
the U.S. government nor any state government has intervened in
the lawsuit. The Company will vigorously defend the lawsuit.
In addition, the Company has received four other subpoenas
since 2007 related to Medicaid billing. In February 2009, the
Company received a subpoena from the Commonwealth of
Virginia Office of the Attorney General requesting documents
related to its billing to Virginia Medicaid. In April of 2013, the
Commonwealth of Virginia Office of Attorney General closed its
investigation. In October 2009, the Company received a subpoena
from the State of Michigan Department of Attorney General seeking
documents related to its billing to Michigan Medicaid. 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 October 2013, the Company received a civil
LABORATORY CORPORATION OF AMERICA
Notes to Consolidated Financial Statements