LabCorp 2014 Annual Report Download - page 30

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would assist physician groups in establishing off-site pathology laboratories. The OIG indicated that the physicians' financial and
business risk in the venture was minimal and that the physicians would contract out substantially all laboratory operations,
committing very little in the way of financial, capital, or human resources. The OIG was unable to exclude the possibility that the
arrangement was designed to permit the laboratory to pay the physician groups for their referrals, and, therefore, was unwilling
to find that the arrangement fell within a safe harbor or had sufficient safeguards to protect against fraud or abuse.
Violations of other fraud and abuse laws also can result in exclusion from participation in federal health care programs, including
Medicare and Medicaid. One basis for such exclusion is an individual or entity’s submission of claims to Medicare or Medicaid
that are substantially in excess of that individual or entity’s usual charges for like items or services. In 2003, the OIG issued a
notice of proposed rulemaking that would have defined the terms "usual charges" and "substantially in excess" in ways that might
have required providers, including the Company, to either lower their charges to Medicare and Medicaid or increase charges to
certain other payers to avoid the risk of exclusion. On June 18, 2007, however, the OIG withdrew the proposed rule, saying it
preferred to continue evaluating billing patterns on a case-by-case basis. In its withdrawal notice, the OIG also said it “remains
concerned about disparities in the amounts charged to Medicare and Medicaid when compared to private payers,” that it continues
to believe its exclusion authority for excess charges “provides useful backstop protection for the public fisc from providers that
routinely charge Medicare or Medicaid substantially more than their other customers” and that it will continue to use “all tools
available … to address instances where Medicare or Medicaid are charged substantially more than other payers.” Thus, although
the OIG did not proceed with its rulemaking, an enforcement action under this statutory exclusion basis is possible and, if pursued,
could have an adverse effect on the Company. The enforcement by Medicaid officials of similar state law restrictions also could
have a material adverse effect on the Company.
Under another federal statute, known as the "Stark Law" or "self-referral" prohibition, physicians who have a financial or a
compensation relationship with a clinical laboratory may not, unless an exception applies, refer Medicare patients for testing to
the laboratory, regardless of the intent of the parties. Similarly, laboratories may not bill Medicare for services furnished pursuant
to a prohibited self-referral. There are several Stark law exceptions that are relevant to arrangements involving clinical laboratories,
including: 1) fair market value compensation for the provision of items or services; 2) payments by physicians to a laboratory for
clinical laboratory services; 3) an exception for certain ancillary services (including laboratory services) provided within the
referring physician's own office, if certain criteria are satisfied; 4) physician investment in a company whose stock is traded on a
public exchange and has stockholder equity exceeding $75.0; and 5) certain space and equipment rental arrangements that are set
at a fair market value rate and satisfy other requirements. All of the requirements of a Stark Law exception must be met in order
for the exception to apply. Many states have their own self-referral laws as well, which in some cases apply to all patient referrals,
not just Medicare.
There are a variety of other types of federal and state fraud and abuse laws, including laws prohibiting submission of false or
fraudulent claims. The Company seeks to conduct its business in compliance with all federal and state fraud and abuse laws. The
Company is unable to predict how these laws will be applied in the future, and no assurances can be given that its arrangements
will not be subject to scrutiny under such laws. Sanctions for violations of these laws may include exclusion from participation
in Medicare, Medicaid and other federal or state health care programs, significant criminal and civil fines and penalties, and loss
of licensure. Any exclusion from participation in a federal health care program, or any loss of licensure, arising from any action
by any federal or state regulatory or enforcement authority, would likely have a material adverse effect on the Company's business.
In addition, any significant criminal or civil penalty resulting from such proceedings could have a material adverse effect on the
Company's business.
Environmental, Health and Safety
The Company is subject to licensing and regulation under federal, state and local laws and regulations relating to the protection
of the environment and human health and safety and laws and regulations relating to the handling, transportation and disposal of
medical specimens, infectious and hazardous waste and radioactive materials. All Company laboratories are subject to applicable
federal and state laws and regulations relating to biohazard disposal of all laboratory specimens and the Company generally utilizes
outside vendors for disposal of such specimens. In addition, the federal Occupational Safety and Health Administration (“OSHA”)
has established extensive requirements relating to workplace safety for health care employers, including clinical laboratories,
whose workers may be exposed to blood-borne pathogens such as HIV, the hepatitis B virus and the hepatitis C virus. These
regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up,
vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens.
In 2012, the federal OSHA Hazard Communication Standard was revised based on the adoption of the Globally Harmonized
System (GHS) that provides criteria for the classification of chemical hazards. Updated copies of Safety Data Sheets for chemical
products used across the Company are being obtained prior to the effective date of June 1, 2015.