Philips 2005 Annual Report Download - page 118

Philips Annual Report 2005118
statements included in its annual report for fi scal year 2002
and its quarterly reports during 2002 and 2003, and all
earnings releases and similar communications relating to
those periods, should no longer be relied upon. MedQuist
also stated that it was unable to assess whether the results
of the review of its billing practices and related litigation
may have a material impact on its reported revenues,
results and fi nancial position. It remains uncertain when
the review can be completed.
On January 19, 2006 MedQuist announced certain
preliminary, partial and unaudited fi nancial results, and
provided updated information regarding litigation and
governmental investigations and proceedings. MedQuist
also announced that it recognized expenses of USD 65
million for making accommodation offers to certain
customers to resolve concerns over billing issues and
that it expects to incur signifi cant costs and expenses in
the future relating to the ongoing billing review, defense of
the class action matters and governmental investigations
and proceedings, and accommodation agreements.
During 2004, various plaintiffs, including current and former
customers, shareholders and transcriptionists, fi led four
putative class actions arising from allegations of, among
other things, inappropriate billing by MedQuist for its
transcription services. The primary allegations in the
litigation matters, and the main issues being addressed in
the ongoing investigation by the U.S. Securities and Exchange
Commission and the HIPAA subpoena received from
the U.S. Department of Justice, relate to how MedQuist
interpreted the AAMT line billing unit of measure.
The AAMT line billing unit of measure was developed
in 1993 through a collaboration among several industry
organizations with the intent of providing standardization
in industry billing practices. However, due to inherent
ambiguities in the defi nition of this unit of measure not
fully anticipated at the time of its introduction, AAMT line-
based billing was applied inconsistently throughout the
medical transcription industry and eventually renounced
by the groups initially responsible for its development.
Despite these issues, a number of companies in the industry
have continued to use AAMT line-based billing, and some
customers still request proposals and contracts based on
the AAMT line.
Like many medical transcription service providers, MedQuist
once used the AAMT line unit of measure to calculate
invoices for many of its medical transcription clients.
It has been widely recognized and well documented
throughout the industry, however, that the AAMT defi nition
of a “line” is inherently ambiguous and subject to a wide
variety of interpretations. In fact, no single set of AAMT
characters was ever defi ned for this unit of measure.
Accordingly, MedQuist began the process in 2004 of
transitioning its AAMT line-based customers off the
AAMT line unit of measure and, in April 2005, MedQuist
completely eliminated the use of the AAMT line for billing
and called on other industry transcription providers to
follow its lead.
Due to these AAMT line unit of measure ambiguities, and
the disparity in its interpretation, health care providers
have raised concerns regarding charges for transcription
services by their respective transcription providers,
including MedQuist. In response to those concerns, and to
foster ongoing business relationships with its customers,
MedQuist has approached certain customers and offered
to resolve any issues related to their prior AAMT line and
other billing-related issues. As of December 31, 2005,
MedQuist has entered into agreements with several of its
customers to resolve concerns over AAMT billing issues
and allegations concerning infl ated invoices with respect
to other units of measure, and paid or credited an aggregate
of USD 20.5 million as an accommodation to those
customers. MedQuist’s Board of Directors has authorized
MedQuist to make additional accommodation offers.
Including the amounts paid and credited, MedQuist’s
Board of Directors has authorized MedQuist to make
accommodation offers up to an amount of USD 65 million
to certain customers to resolve concerns over AAMT
and other billing-related issues. Subject to the previously
mentioned authorization of MedQuist’s Board of Directors,
MedQuist’s management currently intends to make
additional accommodation offers in the future, although
the timing and amount of such offers have not yet been
determined and MedQuist’s plans may change in the
future. The accommodation offers do not represent in
any way MedQuist’s estimate of potential liability, if any,
in any of the previously disclosed litigation or investigatory
matters pending against MedQuist.
MedQuist is unable to predict how many customers, if any,
will accept additional accommodation offers on the terms
proposed by MedQuist, nor is MedQuist able to predict
the timing of the acceptance (or rejection) of any of these
outstanding accommodation offers. Until such offers are
accepted, MedQuist may withdraw or modify the terms
Management discussion and analysis