LabCorp 2014 Annual Report Download - page 21

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19
requisitions excluding the Company's non-U.S. clinical diagnostic laboratory operations in Ontario, Canada, which is reviewed
separately by corporate management for the purposes of allocation of resources) and average revenue per requisition by payer are
as follows:
Requisition
Volume
as a % of Total
Revenue
per
Requisition
Private Patients 1.3 $ 193.08
Medicare and Medicaid 14.4 $ 49.21
Commercial Clients 34.6 $ 40.76
Managed Care 49.7 $ 41.94
A portion of the managed care fee-for-service revenues are collectible from patients in the form of deductibles, copayments,
coinsurance and non-covered tests.
For the Company's subsidiary operations in Ontario, Canada, the Ministry of Health determines who can establish a licensed
community medical laboratory and caps the amount that each of these licensed laboratories can bill the government sponsored
health care plan. The Ontario government-sponsored health care plan covers the cost of clinical laboratory testing performed by
the licensed laboratories. The provincial government discounts the annual testing volumes based on certain utilization discounts
and establishes an annual maximum it will pay for all community laboratory tests. The agreed-upon reimbursement rates are
subject to Ministry of Health review at the end of each year and can be adjusted (at the government's discretion) based upon the
actual volume and mix of test work performed by the licensed providers in the province during the year. In 2014, the amount of
the Company's cap revenue derived from the Ontario government sponsored health care plan was CN$202.1 million.
Seasonality
The Company experiences seasonality in its testing business. The volume of testing generally declines during the year-end
holiday periods and other major holidays. Volume can also decline due to inclement weather, reducing net revenues and cash
flows. Given the seasonality of the testing business, comparison of results for successive quarters may not accurately reflect trends
or results for the full year.
Investments in Joint Venture Partnerships
The Company holds investments in three joint venture partnerships; located in Milwaukee, Wisconsin, Alberta, Canada and
Florence, South Carolina. These businesses primarily represent partnership agreements between the Company and other
independent diagnostic laboratory investors. Under these agreements, all partners share in the profits and losses of the businesses
in proportion to their respective ownership percentages. All partners are actively involved in the major business decisions made
by each joint venture.
The Canadian partnership has a license to conduct diagnostic testing services in the province of Alberta. Substantially all of
its revenue is received as reimbursement from the Alberta government's health care programs. While the Canadian license
guarantees the joint venture the ability to conduct diagnostic testing in Alberta, it does not guarantee that the provincial government
will continue to reimburse diagnostic laboratory testing in future years at current levels. If the provincial government decides to
limit or reduce its reimbursement of laboratory diagnostic services, it would have a negative impact on the profits and cash flows
the Company derives from its Canadian joint venture. In December 2013, Alberta Health Services (“AHS”), the Alberta
government's health care program, issued a request for proposals for laboratory services that includes the scope of services
performed by the Canadian partnership. In October 2014, AHS informed the Canadian partnership that it was not selected as the
preferred proponent. In November 2014, the Canadian partnership submitted a vendor bid appeal and it is vigorously protesting
the contract award. AHS has established a Vendor Bid Appeal Panel to hear the appeal, and the hearing occurred on February
23-25, 2015, and a decision is pending. If the AHS contract award remains with the preferred proponent, then the Canadian
partnership's revenues would decrease substantially and the carrying value of the Company's investment could potentially be
impaired.
Sales, Marketing and Client Service
The Company offers its diagnostic services through a sales force focused on serving the specific needs of customers in different
market segments. These market segments generally include Primary Care, Obstetrics-Gynecology, Specialty Medicine (e.g.,
Infectious Disease, Endocrinology, Gastroenterology and Rheumatology), Oncology and Hospitals.