LabCorp 2015 Annual Report Download - page 112

Index



The Company uses the Black-Scholes model to calculate the fair value of the employee’s purchase right. The fair value of the employee’s purchase right
and the assumptions used in its calculation are as follows:
2015
2014
2013
Fair value of the employee’s purchase right $ 21.95
$ 19.48
$ 17.22
Valuation assumptions
Risk free interest rate 0.3%
0.1%
0.1%
Expected volatility 0.2
0.2
0.2
Expected dividend yield —
—
—

The Company is involved from time to time in various claims and legal actions, including arbitrations, class actions, and other litigation (including those
described in more detail below), arising in the ordinary course of business. Some of these actions involve claims that are substantial in amount. These matters
include, but are not limited to, intellectual property disputes, professional liability, employee-related matters, and inquiries, including subpoenas and other
civil investigative demands, from governmental agencies and Medicare or Medicaid payers and MCOs reviewing billing practices or requesting comment on
allegations of billing irregularities that are brought to their attention through billing audits or third parties. The Company receives civil investigative
demands or other inquiries from various governmental bodies in the ordinary course of its business. Such inquiries can relate to the Company or other
healthcare providers. The Company works cooperatively to respond to appropriate requests for information.
The Company also is named from time to time in suits brought under the qui tam provisions of the False Claims Act and comparable state laws. These
suits typically allege that the Company has made false statements and/or certifications in connection with claims for payment from U.S. or state healthcare
programs. The suits may remain under seal (hence, unknown to the Company) for some time while the government decides whether to intervene on behalf of
the qui tam plaintiff. Such claims are an inevitable part of doing business in the healthcare field today.
The Company believes that it is in compliance in all material respects with all statutes, regulations and other requirements applicable to its clinical
laboratory operations and drug development support services. The healthcare diagnostics and drug development industries are, however, subject to extensive
regulation, and the courts have not interpreted many of the applicable statutes and regulations. There can be no assurance, therefore, that the applicable
statutes and regulations will not be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect the
Company. Potential sanctions for violation of these statutes and regulations include significant fines, the loss of various licenses, certificates and
authorizations, and/or exclusion from participation in government programs.
Many of the current claims and legal actions against the Company are in 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 based on historical loss rates and assessment of
trends experienced in settlements and defense costs. In accordance with Financial Accounting Standards Board (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 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 the proceedings 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 proceedings, however, the Company does not believe, based on currently available information, that the outcomes 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 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 Hunter Labs 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 2011. 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
F-32