EDGAR 10-K Filing

Company CIK: 1022079
Filing Year: 2021
Filename: 1022079_10-K_2021_0001022079-21-000029.json

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ITEM 1. BUSINESS
Item 1. Business
INTRODUCTION
Quest Diagnostics Incorporated is the world's leading provider of diagnostic information services. We play a crucial role in the healthcare ecosystem, empowering people to take action to improve health outcomes. Derived from the world's largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. In the right hands and with the right context, our diagnostic insights can inspire actions that transform lives.
Quest Diagnostics was incorporated in Delaware in 1990; its predecessor companies date back to 1967. We conduct business through our headquarters in Secaucus, New Jersey, and our laboratories, patient service centers, offices and other facilities around the United States and in selected locations outside the United States. Unless the context otherwise requires, the terms “Quest Diagnostics,” the “Company,” “we” and “our” mean Quest Diagnostics Incorporated and its consolidated subsidiaries.
The patients we serve comprise approximately one-third of the adult population of the United States annually, and approximately one-half of the adult population in the United States over a three-year period. We estimate that annually we serve approximately half of the physicians and half of the hospitals in the United States.
During 2020, we generated net revenues of $9.4 billion. Additional financial information concerning Quest Diagnostics for each of the years ended December 31, 2020, 2019 and 2018 is included in the consolidated financial statements and notes thereto in “Financial Statements and Supplementary Data” in Part II, Item 8.
Our vision, aspirational goals and values are set forth below.
We believe that our vision, aspirational goals and strategy align very well with, and our strong value proposition supports, the triple aim of healthcare: improving medical quality and the patient experience while reducing the cost of care.
In 2020, Quest Diagnostics was at the forefront of the response to the COVID-19 pandemic, playing a pivotal role to broaden access to laboratory insights to help people lead healthier and safer lives. We provided both molecular diagnostic and antibody serology tests to aid in the diagnosis of COVID-19 and the detection of immune response to the virus, and performed over 30 million of these tests. Beginning in March 2020, we worked closely with federal, state and local governments, healthcare organizations, payers, suppliers, retailers, trade associations and other laboratories in the effort to bring as much COVID-19 testing as possible to the American people. We also provided data on COVID-19 testing that we conducted to federal, state and local public health authorities, including the federal Centers for Disease Control and Prevention, and participated in studies with government and private institutions, aiding COVID-19 public health response and research. All of our employees, including our dedicated laboratory professionals, phlebotomists, air fleet team, and couriers take tremendous pride in the role we played and worked tirelessly to help patients and communities access quality COVID-19 testing.
During 2020, we also saw how underserved communities were disproportionately impacted by COVID-19 with tragic consequences. With the Quest Diagnostics Foundation, we launched Quest for Health Equity, a $100 million-plus initiative to reduce health disparities in underserved communities. This multi-year initiative, which will focus on people of color, elderly and homeless populations in locations throughout the United States, will provide a combination of testing services, education programs, alliances and financial support to efforts seeking to find new ways to address health disparities.
Our approach to fighting the pandemic has been rooted in our vision of empowering better health through diagnostic insights. We believe that the challenges we are facing from the COVID-19 pandemic have brought us together, made us a stronger company and will help us capture the substantial opportunities in front of us.
OUR STRATEGY
We have a two-point business strategy, reviewed by our Board of Directors, to achieve our vision and our goals.
Accelerate Growth
Our strategy to accelerate revenue growth is based on the Company’s portfolio of services.
Services Portfolio (Table 1)
Activity Key Characteristics At A Glance Quest Value Proposition
General Diagnostics Testing services generating strong cash flows and steady growth • Routine and non-routine testing services
• Largest revenue stream
• Essential portion of healthcare delivery
• Scale
• Operational excellence
• Access and convenience
Advanced Diagnostics Testing services targeting faster growth through innovation testing model • Genetic and advanced molecular testing services
• An important part of precision medicine
• Innovation-based competitors
• Rich clinical, scientific and medical innovation expertise
• Quality and reliability of new assays
• Ability to manage potential new regulatory requirements
Diagnostic Services Laboratory and data-related healthcare opportunities targeting faster growth • Enables partners to deliver healthcare more efficiently (e.g., risk assessment; Professional Laboratory Services; Employer Population Health)
• Services to support population health (e.g., data analytics; extended care services)
• Extensive diagnostic capability
• Large and growing database and analytics expertise
• Partnerships with industry leaders across healthcare landscape
We have identified the following five approaches to accelerate growth.
Approaches to Accelerate Growth (Table 2)
1. Delivering a compound annual revenue growth rate of more than 2% through accretive, strategic acquisitions
Plus organic growth through:
2. Partnering with health plans, IDNs and other risk bearing entities
3. Offering the broadest access to diagnostic innovation
4. Being recognized as the consumer-friendly provider of choice of diagnostic information services
5. Supporting population health with data analytics and extended care services
1. Growing through acquisitions. We have maintained a strategy since November 2018 to grow revenue each year by more than 2% compound annual growth rate through accretive, strategic acquisitions. Although the merger and acquisition environment significantly slowed in 2020 due to the COVID-19 pandemic, we were able to consummate important acquisitions during 2020. Our approach to acquisitions is discussed below under the heading Deliver disciplined capital deployment.
2. Partnering with health plans, IDNs and other risk bearing entities. To help accelerate growth, we focus on large opportunities to partner with outside entities. We strengthen our relationships with health plans and increase the volume of our services for their members by driving value with employers and providing strong value propositions for members and clinicians. This includes building an information platform to help health plans manage utilization and population health, and enhancing processes to help health plans keep laboratory testing in network. For example, in 2020 we established a strategic relationship with Anthem to collaborate on a variety of outcomes-based programs designed to create an improved healthcare
experience for consumers and healthcare providers, and we advanced our position with UnitedHealthcare in its Preferred Lab Network.
We believe that the growing market challenges faced by IDNs, including continued price transparency, cost and utilization pressure, evolving healthcare payment models, capital needs, changing technology and limited resources, provides us with an opportunity to more effectively partner with them as they consider their laboratory testing strategy and will drive demand for our expertise. We have deployed a dedicated health systems team to strengthen our relationships with IDNs, including with respect to their reference testing. We provide reference testing for approximately half of the hospitals in the U.S., and are the leading provider of this testing in the country. In 2020, we logged a record amount of new Professional Laboratory Services business, representing larger and longer term agreements than in the past, and implemented new relationships with, among others, Memorial Hermann Health System, Hackensack Meridian Health, Montefiore Nyack Hospital and Goshen Hospital.
Our industry-leading Professional Laboratory Services suite of solutions help IDNs build and execute their laboratory strategy, improve quality, reduce the cost of care and focus on core competencies.
Key Professional Laboratory Services Offerings (Table 3)
Lab management outsourcing Advanced data solutions
Joint venture Reference testing, including advanced diagnostics
Outreach acquisition Supply chain management and purchasing
Test menu optimization and spend consolidation Blood utilization management
3. Offering the broadest access to diagnostic innovation. Our diagnostic solutions deliver high clinical value to the medical community nationwide. We create value through scientific and product innovation and solution delivery for major clinical opportunities. Starting with a clinical focus on a specific disease state or clinical problem, we take advantage of advanced technology for more precise, comprehensive and actionable information, and deliver the information to the medical community in a meaningful way. We make innovative diagnostic solutions available to community physicians through our connectivity solutions, operational footprint and by making complex results actionable. We plan to expand our innovative diagnostic solutions through research and development, as well as partnerships with academic institutions, other technology and healthcare leaders and public health agencies. In 2020, our approach delivered numerous innovations, including those discussed below under the headings "Innovation" (page 9), "Collaboration" (page 10), "Medical and Scientific Expertise" (page 10) and "Health Information Technology Solutions and Information Assets" (page 10).
Our clinical franchises enable us to perform like a boutique while maintaining our scale advantages, and work with our research and development and commercial organizations to identify/deliver new and improved solutions.
Clinical Franchises (Table 4)
Cardiovascular, Metabolic and Endocrinology Cancer Diagnostics
General Health and Wellness Drug Monitoring and Toxicology
Infectious Diseases and Immunology Sports Science and Human Performance
Neurology Women’s and Reproductive Health
The performance in 2020 of our Infectious Disease and Immunology franchise, which was leading our COVID-19 pandemic response, is an example of the power of our franchises.
4. Being recognized as the consumer-friendly provider of choice of diagnostic information services. We are focused on the consumer. The Company has a long history of focusing on consumer interests, and continues to focus on improving the consumer experience, including through improved digitization and other enhancements of our operations. Examples of our strong consumer focus during 2020 include the strong growth in our QuestDirectTM consumer-initiated testing and establishing special hours at our patient service centers for non-COVID-19 testing to accommodate the needs of older and highly vulnerable patients. Our industry-leading Net Promoter Scores reflect our consumer focus.
Increasing consumer expectations inform our design for our consumer experience.
Consumer-Centric Initiatives (Table 5)
Consumer reminders • Consumers whose physicians have ordered a test for them electronically can receive email reminders to complete the test.
• Consumers who have made appointments can receive appointment reminders via text messaging.
Enhanced consumer experience • Electronic check-in at patient service centers.
• Improved on-line pre-registration and appointment scheduling.
• Real-time payment determination for payers.
Convenient access • Partnerships with Walmart and Safeway to expand convenient access to testing services at select Walmart and Safeway locations across the United States (>200 locations at year end).
Consumer-initiated testing • QuestDirectTM, our consumer-initiated testing service, is available in nearly all states.
• Consumers can choose from test packages (e.g., general health, men's and women's health, digestive health, heart health, infectious disease, sexually transmitted disease), which expanded in 2020 to include testing for COVID-19 with at-home specimen collection.
Consumer connectivity and access to information • >14.5 million registered users in our MyQuest® health portal and mobile connectivity solution.
• During 2020, partnered with The Commons Project to make Quest lab results available for Android users through the CommonHealth app.
• MyQuest® supports Health Records using the Apple Health app.
• Using MyQuest,® consumers can manage healthcare for a group of individuals.
Expanded access to basic healthcare services • Partnership with Walmart to expand access to basic healthcare services.
Self-collection technology • Proprietary, consumer-friendly self-collection technology offered to consumers at home.
Consumer satisfaction • We are measuring consumer satisfaction, including Net Promoter Score based on experience at our patient service centers.
5. Supporting population health with data analytics and extended care services. We support population health by offering services (e.g., home-based health risk assessments and related services) designed to identify gaps in care in a population, provide clinical solutions to close the gaps and foster consumer engagement with a solution. Our services help healthcare providers, health plans, sponsors and IDNs deliver better care to their patient populations by identifying and filling gaps in care for their patient populations and by enabling them to deliver the most effective healthcare to the right populations and individuals. Our offerings leverage the power of our assets and capabilities (e.g., call centers; patient service centers; and mobile workforce, including professionals) and integrate our extensive clinical data, and include data analytics and extended care services. For example, Quest Lab StewardshipTM employs machine learning to help optimize laboratory test utilization.
Drive operational excellence
We strive to enhance operational excellence and improve our quality and efficiency across every portion of our value chain and operations, from the time that we interact with a potential customer until the time we receive payment.
Major Themes to Drive Operational Excellence (Table 6)
Reduce denials and patient concessions Standardize and automate
Digitize the customer experience Optimize
Improving our operations will yield many benefits, including: enhancing customer experience; improving our quality and competitiveness; strengthening our foundation for growth; and increasing employee engagement and shareholder value. We are building a superior experience, at lower cost, for all of our customers, including consumers, health plans, IDNs and clinicians. We endeavor to improve our processes and effectiveness at the same time. We are guided by a service dashboard that focuses throughout our operations on quality for consumers, healthcare providers and employees, including medical quality, on-time delivery, competitive costs and employee safety.
During 2020, our focus on and strength in operational excellence enabled us to rapidly scale up COVID-19 testing capacity without sacrificing our other test offerings. We also made strong progress on our improvement initiatives. For example, we continued (i) consolidating and simplifying our immunoassay platforms, moving to a single supplier to provide greater throughput, autonomy and a more efficient footprint and (ii) optimizing our lab network through investments in our new 250,000 square foot flagship laboratory in Clifton, New Jersey, which we opened early in 2021 and will provide greater capacity, increased throughput and improved productivity.
Our cost excellence program, Invigorate, includes structured plans to drive savings and improve performance across the value chain, including in such areas as revenue services, information technology and procurement. We currently aim annually to save approximately 3% of our costs. In 2020, we achieved our goal; our Invigorate program delivered approximately $200 million of cost savings.
OUR STRENGTHS
We offer high value diagnostic information services and diagnostic solutions that are attractive to our customers.
Our Strengths (Table 7)
Quality Strong Operating Principles
Assets and Capabilities to Deliver Value Health Information Technology Solutions and
Information Assets
Innovation Medical and Scientific Expertise
Collaboration Customer Focus
Quality
Our goal is to provide every patient with services and products of superior quality. We strive to accomplish that through commitment, leadership, and establishing rigorous processes which we measure and continually seek to improve, and by using the Quest Management System, which provides best-in-class business performance tools to create and implement effective and sustainable quality processes. The Quest Diagnostics Quality Program includes policies and procedures to document, measure and monitor the effectiveness of our laboratory operations in providing and improving quality and meeting applicable regulatory requirements. The Quality Program is designed so that the quality of laboratory services is monitored objectively and evaluated systematically to deliver superior quality care, identify opportunities to improve patient care and resolve identified problems. To help achieve our goal of becoming recognized as the undisputed quality leader in the diagnostics information services industry, we have implemented our Quality System Framework, which serves as a reference
guide for our employees and describes our Quality System Elements, which provide the structure for each laboratory to achieve and maintain quality processes. We also have a robust Supplier Quality Program designed to ensure we have a high quality supplier network and to raise the bar of quality expectations across that network. Being chosen by UnitedHealthcare as a participant in the UnitedHealthcare Preferred Lab Network reflects the strength of our quality. For additional information about our commitment to quality, see "General - Quality Assurance" on page 24.
Strong operating principles
We have a foundation of three strong operating principles:
•strengthen organizational capabilities;
•remain focused on diagnostic information services; and
•deliver disciplined capital deployment.
Strengthen organizational capabilities. We continuously strive to strengthen our organizational capabilities to support our two-point strategy, enable growth and productivity, better focus on our customers, speed decision-making and empower employees. Highlights include:
•Align for Growth, Execution and Efficiency. Our organization is designed to align around future growth opportunities, coordinate business units for seamless execution and leverage our company-wide infrastructure to gain more capability, value and efficiency. We relied on this organizational design to allow us to develop a coordinated and sustained strategy to respond to the unprecedented challenges we face responding to the COVID-19 pandemic. The value creation side of our business includes product and commercial marketing and is organized by clinical franchise and focuses on customer solutions for the marketplace, including new test development and diagnostic insights. The value delivery side includes sales, laboratory operations, field operations, logistics and client services.
•Quest Management System. This system provides a foundation for day-to-day management, and includes best-in-class business performance tools to help develop new capabilities to improve our Company. The system enables us to run the Company with a common language, approach and philosophy, and supports our efforts as we build a high-performance culture, with employees focused on behaviors to make us more agile, transparent, customer-focused, collaborative and performance oriented.
Remain focused on diagnostic information services. We maintain a sharp focus on providing diagnostic information services.
Deliver disciplined capital deployment. Our disciplined capital deployment framework includes investment in our business, dividends and share repurchases. The framework is grounded in maintaining an investment grade credit rating. We expect to return a majority of our free cash flow to investors through a combination of dividends and share repurchases. Consistent with that expectation, in February 2021 we announced that we increased our quarterly common stock cash dividend by approximately 11%, from $0.56 per common share to $0.62 per common share. This represents our tenth increase in the dividend since 2011. For many years, we have maintained a common stock repurchase program. Since the beginning of 2013, we have returned approximately $3.4 billion to stockholders through repurchases of our common stock. Our share repurchases, dividends and capital expenditures in each of the last three years are presented in our consolidated financial statements (Part II, Item 8 of this Report). For most of 2020, we suspended our share repurchase program due to the challenges and uncertainty associated with the COVID-19 pandemic.
The Company's strategy includes generating growth through value-creating, strategically-aligned acquisitions using disciplined investment criteria. We screen potential acquisitions using guidelines that assess strategic fit and financial considerations, including value creation, return on invested capital and impact on our earnings. In 2020, we consummated the acquisition of Blueprint Genetics, acquired substantially all the operations of Memorial Hermann Diagnostics Laboratories, the outreach laboratory division of Memorial Hermann Health System, and acquired from our joint venture partners the remaining 56% interest in Mid America Clinical Laboratories, LLC. Our material acquisitions in each of the last three years are further discussed in Note 6 to the audited consolidated financial statements (Part II, Item 8 of this Report).
We will continue to invest in our business in a disciplined manner, including focusing on enhancing our solid foundation of strategic assets and capabilities, accelerating growth and driving operational excellence. Our near-term investments in growth are likely to focus on the strategies to accelerate growth set forth in table 2 above. Our near-term
investments to drive operational excellence are likely to focus on improving the customer experience and gaining efficiency, systems standardization, digital enablement of our processes and footprint optimization.
Assets and capabilities to deliver value
We use our unmatched size, scale and capabilities to deliver a very attractive value proposition to our customers.
Assets and Capabilities (Table 8)
Connectivity ● Provide healthcare connectivity solutions to >406,000 clinician and hospital accounts and interface with approximately 760 electronic health records systems
Data ● The largest private database of de-identifiable laboratory test results: >56 billion patient data points
Logistics ● Strong logistics capabilities
• make approximately 72,000 stops daily
• approximately 4,000 courier vehicles
• 24 aircraft serving the U.S.
Medical and Scientific Staff
● One of the largest medical and scientific staffs in the industry to provide interpretive consultation
• >600 M.D.s and Ph.Ds, many of whom are recognized leaders in their field
• Genetic counselors
Other Healthcare Professionals
● Approximately 23,000 phlebotomists, paramedics, nurses and other health and wellness professionals
Consumer Access
● >6,850 patient access points, including phlebotomists in physician offices and the most extensive patient service center network in the U.S. with >2,200 locations
Health Plan Participation
● Access to approximately 90% of U.S. insured lives
Processing Volume
● Processed approximately 187 million test requisitions in 2020
Range of Testing
● Industry-leading test menu across clinical sub-specialty areas and diagnostic technologies
Patents
● Own or control approximately 1,100 issued and 450 pending patents worldwide in 2020
Innovation
We are a leading innovator in diagnostic information services. We develop and introduce new tests, including many with a focus on personalized and targeted medicine, and new services. Our capabilities include discovery, technology development and clinical validation of diagnostic tests. We also partner with other developers of new technologies, services and tests to transfer their innovations to the marketplace, using our in-house expertise (e.g., strength in assay development and commercialization of testing services). These developers include large commercial manufacturers, the academic community, pharmaceutical and biotechnology firms, emerging medical technology companies and others that develop and commercialize novel diagnostics, pharmaceutical and device technologies. We maintain relationships with advisers and consultants who are leaders in key fields of science and medicine. As the industry leader with the largest and broadest U.S. network, we believe we are the distribution channel of choice for developers of new solutions.
We seek innovations and solutions that help healthcare providers care for their patients through better testing for predisposition, screening, monitoring, diagnosis, prognosis and treatment choices, and that will reduce the overall cost of healthcare. We seek to develop innovations and solutions that help to determine a patient's genotype or gene expression profile relative to a particular disease and its potential therapies, because they can help healthcare providers to determine a patient's susceptibility to disease or to tailor medical care to an individual's needs. This would include determining if a medication might be an optimum choice for a particular person, or tailoring the right dosage once the proper medicine is prescribed. We endeavor to improve test processes, including through increased automation. In addition, we aim to develop holistic solutions responsive to challenges that healthcare providers and patients face, by developing solutions of tests, information and services focused on specific clinical challenges, and taking advantage of the latest informatics capabilities. We also look for innovations and solutions that are less invasive than currently available options, to increase the choices that healthcare providers and patients have for the collection of diagnostic samples. We additionally seek innovation in the ways we bring solutions to customers, and in the customer experience, including enhanced services and end-to-end solutions for convenience and support. Further, we
seek innovative solutions to other challenges related to diagnostics information services faced by IDNs, health plans and other healthcare market participants.
In 2020, we secured Emergency Use Authorization from the FDA for pooled specimen testing in connection with molecular diagnostic COVID-19 testing. We also developed and launched new test offerings to educational institutions, such as colleges and universities, to help facilitate the return to classrooms. In addition, we launched automated next generation genetic sequencing, which will enable genetic screening faster and at much lower cost. With government and private sector partners, we developed and built "pop-up" COVID-19 testing sites that offered a new, efficient model for consumer access to testing. These initiatives, along with other 2020 developments highlighted below under the headings "Collaboration," Medical and Scientific Expertise," and "Healthcare Information Technology Solutions and Information Assets," demonstrated our strength in innovation during 2020.
Collaboration
We believe that strategic relationships, including with healthcare providers, public health authorities, consumer-focused entities and others, can position us for growth at the center of healthcare and that healthcare companies that can partner effectively with others will be successful in the long term. We collaborate with partners that can help us to achieve our vision of empowering better health through diagnostic insights and have relationships across the spectrum of healthcare, including with world class healthcare and consumer-focused leaders, to foster important advances in healthcare, including in precision medicine and healthcare delivery. We plan to continue to pursue strategic relationships to help accelerate growth and drive operational excellence. Our collaborations with CVS Health, Walmart and other partners regarding expanding access to COVID-19 testing during 2020 demonstrate this strength.
Medical and Scientific Expertise
We have strong medical and scientific expertise and aspire to be a trusted authority in diagnostic medicine, provide insights and tools to support public and personal health, lead and facilitate scientific discussion and inspire innovation. Our medical and scientific experts regularly provide presentations, symposia and webinars regarding diagnostic testing and participate on scientific committees determining guidelines for diagnostic usage. They also publish research that demonstrates the clinical value and importance of diagnostic testing, including in connection with our research and development efforts, in peer-reviewed journals, textbooks and other publications. For over 30 years, the Company has published the Quest Diagnostics Drug Testing Index,TM a series of reports on national workplace drug positivity trends based on the Company's employer workplace drug testing data, that is widely cited by employers, the federal government and the media to help identify and quantify drug abuse among the nation's workforce. The Company also publishes Quest Diagnostics Health Trends,TM a series of scientific reports that provide insights into health topics, based on analysis of objective clinical laboratory data, to empower better patient care, population health management and public health policy. Our role at the forefront of the response to the COVID-19 pandemic demonstrated this strength. We secured numerous Emergency Use Authorizations from the FDA for innovations in connection with COVID-19 testing and specimen collection, including regarding unobserved nasal specimen self-collection, combined COVID-19 and respiratory virus tests, COVID-19 testing ordered by consumers, and methods to increase testing capacity and expand the testing supply base. We also published over ten Health Trends reports on COVID-19 during 2020, including reports addressing the "hidden pandemic": reduced hemoglobin A1c diabetes monitoring as a consequence of the COVID-19 pandemic; a 46% decrease in newly identified cancer patients during the COVID-19 pandemic; and drug testing decreased by as much as 70%, while drug positivity rates increased (e.g., 35% increase for non-prescribed fentanyl; 44% increase for heroin), during the COVID-19 pandemic.
Health Information Technology Solutions and Information Assets
We have a history of providing leading information technology for diagnostic information services, including for patients, clinicians and healthcare organizations. We were the first national diagnostic information services provider to offer online patient appointment scheduling and a patient connectivity solution. Our MyQuest® patient healthcare portal, with over 14.5 million registered users at year-end 2020, enables patients to manage healthcare and medical information for themselves and a circle of others and, among other things, use their smartphone or computer to order a test, find a Quest Diagnostics location, schedule appointments, receive appointment reminders, and receive and archive their test results. During 2020, we collaborated with CLEAR to integrate CLEAR's safe and secure "Health Pass" technology with the Company's advanced COVID-19 testing capabilities to foster safer public environments and help reduce public health risk. We also are a founding member of the Synaptic Healthcare Alliance, which is working to create a platform, powered by blockchain technology, that enables a culture of innovation, removes friction and solves shared challenges impacting constituents across healthcare today.
We also have significant information assets and offer a robust portfolio of powerful analytics that inspire action and deliver value to an array of customers. We offer an array of Quanum® solutions based on data insights, including retrospective analytics solutions for healthcare professionals and practices, health plans, IDNs, pharmaceutical companies and public health. We believe that solutions can tap the potential of large amounts of clinical information to: enhance the customer experience; deliver more precise, comprehensive solutions and actionable information; provide increased and interactive insights and analytics; foster greater adherence to clinical and reimbursement guidelines; and advance the development of precision medicine. We believe that the breadth and depth of our data, combined with our powerful analytics capabilities, enables us to take advantage of important data-based opportunities in diagnostics, and provides us a competitive advantage.
Customer Focus
Our brand -- Action from Insight® -- reflects our commitment to a superior customer experience. The customer is at the center of everything we do; we strive to give them reason to put their trust in us. We use customer insights in developing our approach, listening to the voice of customers to identify and implement solutions and processes that will result in a superior customer experience. We also maintain our Everyday Excellence program, which includes guiding principles to support a superior customer experience, inspiring our employees to be their best every day, with every person and with every customer interaction.
BUSINESS OPERATIONS
The Company is made up of two businesses: Diagnostic Information Services and Diagnostic Solutions. Our Diagnostic Information Services business develops and delivers diagnostic information services, providing insights that empower and enable a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers, ACOs and DCEs. Our Diagnostic Solutions group includes our risk assessment services business, which offers solutions for insurers, and our healthcare information technology businesses, which offers solutions for healthcare providers. Our services primarily are provided under the Quest Diagnostics brand, but we also provide services under other brands, including AmeriPath,® Dermpath Diagnostics,® ExamOne,® and Quanum.®
We are the leading provider in the United States, where we conduct substantially all of our business, of clinical laboratory and anatomic pathology testing, and related services. We see opportunities to bring our experience and expertise in diagnostic information services to markets outside the United States, including leveraging existing facilities to serve new markets. We have laboratory facilities in Mexico and Puerto Rico. We are a founding member, with other leading diagnostic laboratories outside the United States, of the Global Diagnostics Network,TM a strategic working group of diagnostic laboratories committed to unleashing and sharing local innovation to increase global access to diagnostic science, information and services and generating enhanced diagnostic insights to improve the delivery of global healthcare. During 2020, COVID-19 was a key focus area for the Global Diagnostics Network, as members shared experiences and best practices regarding COVID-19 testing.
Diagnostic Information Services
Background - clinical testing. Clinical testing is an essential element in the delivery of healthcare services. Clinicians use clinical testing for predisposition, screening, monitoring, diagnosis, prognosis and treatment choices of diseases and other medical conditions. Clinical testing is generally categorized as clinical laboratory testing and anatomic pathology services. Anatomic pathology involves the diagnosis of cancer and other diseases and medical conditions through examination of tissue and cell samples taken from patients.
Clinical laboratory testing, which can be characterized as routine, non-routine or advanced, generally is performed on whole blood, serum, plasma and other body fluids, such as urine, and specimens such as microbiology samples. Clinical laboratory tests which can be performed by most clinical laboratories are considered routine. Routine testing measures various important bodily health parameters such as the functions of the kidney, heart, liver, thyroid and other organs. Commonly ordered routine tests include blood chemistries, urinalysis, allergy tests and complete blood cell counts. Non-routine tests may require professional “hands-on” attention from highly-skilled technical personnel, generally require more sophisticated informatics, technology, equipment or materials, may be performed less frequently than routine tests and may be reimbursed at higher levels than routine tests. It may not be practical, from a cost-effectiveness or infrastructure perspective, for many hospitals, IDNs, ACOs, DCEs, commercial laboratories or physician office laboratories to develop and perform a broad menu of non-routine tests, or to perform low-volume non-routine testing in-house. Such tests generally are outsourced to a clinical testing laboratory which can perform these non-routine tests. Some non-routine tests are advanced. Advanced tests include procedures in the areas of molecular diagnostics (including next-generation sequencing), oncology, neurology, companion diagnostics and non-invasive pre-natal and other germline genetic testing.
Our services. We are the world's leading provider of diagnostic information services. We provide information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We have strong testing capabilities, including services for the predisposition, diagnosis, treatment and monitoring of cancers and other diseases, and offer advanced tests in many fields, including endocrinology, immunology, neurology and oncology. Increasingly, we are focused on providing solutions and insights to our customers, based on the testing that we perform, the data that we gather and our extensive medical, information and connectivity assets. We believe that offering services, solutions and insights based on a full range of tests, information assets and other capabilities strengthens our market offering, market position and reputation.
We offer the broadest access in the United States to clinical testing. We maintain a nationwide network of laboratories, including advanced laboratories (such as our world-renowned Quest Diagnostics Nichols Institute®) as well as rapid response laboratories (smaller facilities where we can quickly perform an abbreviated menu of routine tests for customers that require rapid turnaround times). We operate 24 hours a day, 365 days a year. Our nationwide network also includes patient service centers, phlebotomists in physician offices, and our connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. Our large in-house staff of medical and scientific experts, including medical directors, scientific directors, genetic counselors and board certified geneticists, provide medical and scientific consultation to healthcare providers and patients regarding our tests and test results, and help them best utilize our services to improve outcomes and enhance satisfaction. We also provide testing (including anatomic pathology) services and medical director services at hospital laboratories.
We are a leading provider of diagnostic information services for infectious disease, such as COVID-19 (including molecular diagnostic and serology antibody offerings), tuberculosis (e.g., our T.SPOT.TB and Quantiferon offerings) and tick-borne disease (e.g., our Accutix® offering). We strive to be the first to provide diagnostic solutions for emerging infectious diseases (e.g., our offerings for Zika, West Nile Virus, SARS and Influenza A H1N1). We have leading positions in drug monitoring and toxicology, in neurology diagnostics, in advanced cardiovascular diagnostic information services (e.g., our CardioIQ® and Cleveland HeartLab® offerings), and in cancer diagnostics (e.g., our QuestVantage® and Med FusionTM offerings). We are a leader in providing testing for the detection of employee use of drugs of abuse, offering a full range of solutions, including urine, hair, blood and oral fluid tests. We are the largest workplace drug testing provider certified by the U.S. Department of Health and Human Services to perform drug testing using electronic custody and control forms for federally-mandated, safety-sensitive workers.
We are a leading provider of employer population health services, including biometric screenings, flu shots and related preventative services that leverage clinical data to improve population health outcomes and reduce healthcare spend. Our solutions enable employers to leverage screening insights to identify chronic disease risks, connect employees to needed in-network care, and empower better health. Our offerings include connecting participants to the right care at the right time, such as (i) a program designed to prevent diabetes and other chronic conditions, (ii) a program that enables participants to engage with a board-certified physician about their results and to be guided about actions based on those results and (iii) a mental health assessment program that links participants to virtual support. These services are sold directly to employers and through reseller partnerships with health plans. During 2020, in response to the COVID-19 pandemic, we developed and offered to employers COVID-19 Return to Work services, to assist organizations develop plans for safer workplaces. We also collaborated with Catapult Health, the leading national provider of employer-sponsored preventative checkups, to help organizations facilitate virtual telehealth access to clinical services for their employees and adult dependents, with emphasis on reducing risks related to preventable chronic diseases.
We offer Quanum® health information technology solutions, including our products and national healthcare provider network, to help healthcare organizations and clinicians empower better health by leveraging the power of our significant information assets, including many years of test result data, and our technology prowess, including our history of providing leading information technology for diagnostic information services. Our portfolio of offerings is designed to address analytic, clinical and financial needs. The solutions help healthcare organizations and clinicians analyze and put in context data, and enable them to connect across the healthcare system and engage with their stakeholders. They can enter, share and access clinical information without costly information technology implementation or significant workflow disruption.
We offer an array of population health solutions. Our services build on the power of our information assets and data capabilities and help clinicians, health plans, sponsors and IDNs deliver better care to their patient populations by identifying gaps in care in a population, providing clinical solutions to close the gaps and fostering consumer engagement with a solution. Our extended care services, including home-based health risk assessments and related services, leverage our assets and capabilities (e.g., call centers, patient service centers and mobile workforce, including professionals) and focus on extending the reach of clinician offices beyond their traditional four walls to assess the health of their populations, and doing so when and where it is convenient for consumers. Once gaps are identified, we engage patients in our retail sites, in home or by telephone, including through our call centers and our mobile base capabilities, including highly-trained healthcare professionals. We also offer services such as diabetic retinopathy and bone density examinations.
We offer services to pharmaceutical companies, including clinical trials testing. We have expertise in developing laboratory tests for FDA submission as companion diagnostics and laboratory developed tests for complementary diagnostics, and offer an array of assets and services to support the development of companion diagnostics, including our robust data set and patient services network. We also offer Quest Clinical Trials ConnectTM to help accelerate clinical trials (and thus the speed of drugs to market) through better patient recruitment, involvement and management, and improved physician outreach.
We also offer sports teams, including at the professional and collegiate levels, our BluePrint for Athletes® performance tools, based on biomarker testing, designed to optimize high-level athletic performance through actionable insights. This service provides the context for athletes to consider performance variables holistically, including nutritional education and intervention, maximum fitness, injury assessment and training load monitoring as well as sophisticated biometric analysis. During 2020 we also expanded our test offerings for athletes to include COVID-19 testing, to foster the country's return to athletic fields.
Diagnostic Solutions
We are the leading provider of risk assessment services for the life insurance industry. In addition, we offer healthcare organizations and clinicians robust health information technology solutions.
Risk Assessment Services. ExamOne® is the largest provider of risk assessment services to the life insurance industry in North America. Our risk assessment services comprise underwriting support services, including data gathering, paramedical examinations and clinical laboratory testing and analytics, designed to assist life insurance companies objectively to evaluate the mortality risks of applicants. Most specimen collections and paramedical examinations are performed by our network of paramedical examiners at the applicant's home or workplace, but they also are offered at hundreds of Company patient service centers and hundreds of additional North American locations.
Healthcare Information Technology. Our healthcare information technology offerings, including Quanum® Practice Solutions, our Electronic Health Record, Practice Management and Revenue Cycle Management Solutions for healthcare providers, and our award-winning Quanum® Enterprise Content Solutions for hospitals and IDNs, connect data to decision-making and help clinicians advance clinical and operational strategies. Healthcare organizations have contracted for the use of Quanum® Enterprise Content Solutions at over 375 sites in North America. Our Quanum® Electronic Health Record is a cloud-based, mobile-accessible offering that enables clinicians to generate a complete record of a clinical patient encounter, automates and streamlines the clinician's workflow, provides clinical decision support tools, captures patient encounter notes and lab and radiology results and enables secure communication with patients and other clinicians.
Other
Q2 Solutions,® our joint venture with IQVIA Holdings Inc., is the second largest central laboratory services company in the world and provides services to customers across all segments of the biopharmaceutical industry. Central laboratory testing services are critical to advances in genomics, precision medicine and drug development. We own a minority interest in Q2 Solutions, which has helped develop many of the oncology precision medicine drugs approved by the FDA in recent years.
THE CLINICAL TESTING INDUSTRY
Our estimate in table 10 does not include the impact of COVID-19 testing.
Key Trends
The healthcare system in the United States is evolving; significant change is taking place in the system. We expect that the evolution of the healthcare industry, including impacts of the COVID-19 pandemic, which include the increased adoption of telemedicine, will continue, and that industry change is likely to be extensive. There are a number of key trends that are having, and that we expect will continue to have, a significant impact on the diagnostic information services business in the United States and on our business. These trends, discussed in the table below, present both opportunities and risks. We believe that several of the trends, including consolidation, price transparency and consumerization, are favorable to our business.
Because diagnostic information services is an essential healthcare service and because of the key trends discussed below, we believe that the industry will continue to grow over the long term. In addition, we believe that the clinical testing market continued with fundamental changes in 2020. First, we believe that PAMA-driven reimbursement pressure is negatively impacting access to care and hurting the clinical testing industry, and remains a catalyst for structural change in the market. Second, we believe that health plans increasingly are focusing on driving better value in laboratory testing services. Third, we believe that ongoing consumerization in healthcare, with increased cost being borne by consumers, is sharpening focus on price disparities. We believe that these changing market fundamentals will benefit low-cost, high-value providers like Quest and that we are well positioned to grow from the changing market conditions and benefit from the long-term growth expected in the industry.
Key Trends (Table 11)
PAMA-driven reimbursement pressure Pursuant to PAMA, reimbursement rates for many clinical laboratory tests provided under Medicare were reduced in 2018, 2019 and 2020. PAMA calls for further revision of the Medicare Clinical Laboratory Fee Schedule for years after 2020, based on future surveys of market rates; reimbursement rate reduction from 2022-24 is capped by PAMA at 15% annually.
The LAB Act provided an opportunity for reforms to PAMA by delaying PAMA's next data collection and reporting period until January 1, 2021 and by ordering a study to determine ways to improve future collection of more representative market rate data under PAMA. The CARES Act, adopted in early 2020 in response to the COVID-19 pandemic, suspended the PAMA reimbursement rate cuts that had been scheduled for 2021 and delayed PAMA's next data collection and reporting period until January 1, 2022.
The American Clinical Laboratory Association, of which the Company is a member, initiated a lawsuit charging that in implementing PAMA, CMS failed to follow a Congressional directive to implement a market-based laboratory payment system. The lawsuit is pending.
We believe that PAMA is negatively impacting participants in the laboratory testing industry generally, including hospitals as well as independent clinical laboratories.
Health plans driving value in lab spending Hospitals, which provide outreach testing and may encourage clinicians to send their outreach testing volume to the hospital's laboratory, historically were able to negotiate higher reimbursement rates with health plans than commercial clinical laboratories for comparable services. In addition, health plans generally reimburse non-participating laboratory testing providers at higher out-of-network rates. We are finding increased interest among health plans in driving better value in spending for laboratory testing. Health plans increasingly are taking steps to encourage the movement of testing volume to high value, low cost providers like our Company, including by identifying preferred provider partners, plan design changes (e.g., zero-dollar out-of-pocket costs for members using preferred providers) and better aligning reimbursement rates for hospital-based providers and independent commercial laboratories. The UnitedHealthcare Preferred Lab Network, in which we were chosen to participate, is a recent example of a health plan taking these steps.
Health plans also are increasingly adopting policies, practices and procedures based on requirements imposed by government payers such as Medicare and Medicaid. These policies, practices and procedures are subject to change, and may be changed without notice to us.
Consumerization Consumers are our customers. Increasingly, consumers are engaged in their own healthcare, being empowered to understand and manage their healthcare. Consumers are taking increased interest in and responsibility for their healthcare, their expectations of healthcare providers are increasing and they are becoming more sophisticated regarding healthcare. Some patients are interested in selecting their own diagnostics tests, rather than relying upon a healthcare professional to select the tests. In addition, consumers often are bearing increased financial responsibility for their healthcare (e.g., high deductible health plans; rising deductibles). In our experience, consumers are more focused on transparency, ease of doing business and understanding diagnostics information services than they have been in the past. Consumers increasingly are demanding convenience; a superior and personalized experience relevant to their needs; and to be empowered to make their own healthcare decisions. During the COVID-19 pandemic, we saw consumers increase their use of telemedicine capabilities, increase their responsibility for their own healthcare (e.g., increased consumer-initiated testing; increased specimen self-collection) and increase their openness to new delivery channels (e.g., retail; convenient "pop-up" test centers). In addition, consumers are seeking prompt, direct access to their test results. Increasingly, consumers are motivated to find high quality service providers with strong digital experience delivery engines, accessible customer service and low prices, like our Company.
Prevention and wellness We believe that the value of detection, prevention, wellness and personalized care is well recognized. Consumers, employers, ACOs, IDNs, health plans and government agencies increasingly focus on helping the healthy stay healthy, detecting symptoms among those at risk and providing preventive insight and care that helps avoid disease.
Medical innovation Medical advances allow for more accurate and earlier diagnosis and treatment of diseases.
Continuing advances in genomics and proteomics are expected to yield new, more sophisticated and specialized diagnostic tests. These advances also are spurring interest in and demand for precision medicine, which relies on diagnostic and prognostic testing and in which data information services and strategies are used to deliver the most effective healthcare to the right populations and individuals.
Pharmacogenomic testing increasingly is used as a parameter to help speed drug approval processes and to better focus therapy based on patient and tumor-specific genetic markers.
Demand also is growing toward comprehensive care management solutions that serve patients, payers and healthcare providers by improving clinical decision support and access to patient data, and by increasing patient participation in care management and population health management.
Innovation also includes making healthcare services, including laboratory testing services, more convenient for populations and consumers to access, including at home (e.g., telehealth) or in retail settings.
There is increasing focus on access to patient data and data-driven insights.
Healthcare industry evolution Clinicians, health plans, IDNs, ACOs, employers and others, have been consolidating, converging and diversifying. For example, a number of hospital systems are considering establishing or have established health insurance plans, and health insurance plans are considering providing or are providing healthcare services. In recent years, a leading provider of retail medical clinics and pharmacy benefits management services has acquired a leading health insurance provider, a leading health insurance provider has acquired a leading pharmacy benefits manager, and the corporate parent of a leading health insurance company provides a wide array of healthcare services through its non-insurance company subsidiaries. Health plans are entering agreements with other providers of healthcare services, including laboratory testing services providers, to partner on value-based approaches to delivering healthcare to populations. DCEs have been established.
Consolidation is increasing pricing transparency and bargaining power, and may encourage internalization of clinical testing.
Physicians frequently now are employed by hospital systems, IDNs, ACOs, DCEs or large group practices integrated with healthcare systems, instead of organizing physician-owned practices, which is impacting the dynamics for whether clinical testing is performed in or outside of a hospital. Physicians and other clinicians also increasingly are being employed by health plans or their affiliates.
Value-based reimbursement is contributing to changes in the healthcare system. ACOs and patient-centered medical homes have grown as a means to deliver patient care. Healthcare services increasingly are being provided by non-traditional providers (e.g., physician assistants), in non-traditional venues (e.g., retail medical clinics, urgent care centers) and using new technologies (e.g., telemedicine, digital pathology).
In addition the ACA continues to result in changes in the way that some healthcare services are purchased and delivered in the United States. Hospitals and IDNs are under significant pressure, and are evolving.
Pricing transparency There has been a trend toward greater pricing transparency in healthcare, including in the laboratory testing marketplace. Several states have taken action to foster greater pricing transparency in healthcare. For example, Massachusetts launched a website to help consumers understand the wide variation in healthcare costs. In addition, the federal government requires providers of COVID-19 testing to post on their websites information regarding test pricing, and has adopted new legislation and issued new regulations designed to increase transparency regarding pricing and quality in healthcare, including requiring providers, group health plans and insurers to disclose cost information to consumers in advance of care being provided.
Increased price transparency, combined with increased patient financial responsibility for medical care, is enhancing purchasing sophistication and fostering changes in behavior in the healthcare marketplace. We believe that increased price transparency should benefit low cost, high value providers like our Company.
Competition The diagnostic information services industry remains fragmented, is highly competitive and is subject to new competition.
Competition is emerging from new technologies (e.g., digital pathology) and growing from non-traditional competitors (e.g., a government agency or employer establishing its own clinical laboratory for testing). Increased hospital acquisitions of physician practices may enhance clinician ties to hospital-affiliated laboratories and may strengthen their competitive position. However, in light of other trends, including continued reimbursement pressure, hospitals may change their approach to providing clinical testing services.
New industry entrants with extensive resources may make acquisitions or expand into our traditional areas of operations.
Healthcare utilization
Healthcare utilization in the United States has fluctuated based on a number of factors. These factors include, without limitation, the economy, healthcare benefits design, patients delaying medical care (e.g., due to the COVID-19 pandemic), and increased consumer financial responsibility for, interest in and control of their healthcare.
The ACA contained provisions eliminating patient cost-sharing for preventative services, and additional provisions that we believe increased the number of patients that have health insurance, including Medicaid, and thus better access to diagnostic testing.
Reimbursement pressure; affordability There is a strong focus in the United States on controlling the overall cost of healthcare.
Healthcare market participants, including governments, are focused on controlling costs. Examples of cost control approaches include reducing reimbursement for healthcare services, changing reimbursement for healthcare services (e.g., shift from fee for service to capitation), changing medical coverage policies (e.g., healthcare benefits design), denying coverage for services, requiring preauthorization of laboratory testing, requiring co-pays, introducing laboratory spend management utilities and payment and patient care innovations such as ACOs, DCEs and patient-centered medical homes. CMS has set goals for value-based reimbursement to be achieved in Medicare. There is increased market activity regarding alternative payment models, including bundled payment models.
The Health Transformation Alliance, a group of over 50 major U.S. companies, was formed to improve and reform the healthcare system in the United States. The rising cost of healthcare in the United States was a key driver for the formation of this alliance.
In 2018, a trio of high profile U.S. corporations, citing rising healthcare costs, announced plans to reduce their workers' healthcare costs by forming a non-profit venture that would provide simplified, high-quality healthcare for their workers. Although the venture announced in early 2021 that it was disbanding, we believe that there will be other initiatives to transform healthcare.
While pressure to control healthcare costs poses a risk to our Company, it also creates opportunities, such as an opportunity for increased proper utilization of testing as an efficient means to manage the total cost of healthcare. We believe that it also creates greater opportunities for consolidation and gaining share for high value, low-cost providers, like our Company, as compared to other providers.
Legislative, regulatory and policy environment Government oversight of and attention to the healthcare industry in the United States is significant and increasing; healthcare payment reform and cost transparency are significant issues.
Legislation introduced in Congress would enable the FDA to regulate LDTs, in vitro diagnostics, software and other items used in the diagnosis of disease. If the legislation becomes law, the FDA could regulate diagnostic tests and components and platforms used as part of these tests. The FDA and HHS also have expressed views regarding the regulation of LDTs. Either new law or a revised approach to regulation of LDTs could have a significant impact on the clinical laboratory testing industry, including regulating LDTs in new ways, while creating avenues of opportunity and competition regarding clinical laboratory testing. New competitors may enter the industry, and competition may come in new forms.
The ACA has created significant uncertainty as healthcare markets react to changes. For example, more than half of the states have opted in to Medicaid expansion and employers may discontinue offering group health insurance to their employees, shifting more people to exchange products.
Certain aspects of the ACA have been repealed, delayed or modified (e.g., the medical device excise tax). The scope and timing of any further legislation to repeal, amend, replace, or reform the rest of the ACA is uncertain, but if such legislation were to become law, it could have a significant impact on the U.S. healthcare system. In addition, uncertainty regarding the status of the ACA prior to any such repeal, amendment, replacement or reform could create uncertainty generally in the healthcare market.
Several federal courts have recently issued determinations that portions of the ACA are unconstitutional; those rulings are not yet final, with appeals pending at the U.S. Supreme Court.
Informatics; technology; privacy concerns The increased availability of healthcare data, including data made available as a result of next generation DNA sequencing, and the increased ability to effectively analyze that data at population and patient levels, is impacting healthcare practices. It is anticipated that the increased use of data in healthcare, coupled with mobile healthcare IT solutions for doctors and patients, will help to improve patient outcomes and reduce overall healthcare costs. In 2020, we launched automated next generation genetic sequencing, which will enable genetic screening faster and at much lower cost.
Informatics, including integrated diagnostic and decision support solutions, predictive analytics, use of population data and healthcare information technology, is spurring advances in precision medicine, including medical decision making and value, for populations and individuals. The increased focus on data and its use is increasing focus on maintaining the privacy of patient data.
There is a need for technology solutions to harness these opportunities. In addition, new technology, social media and mobile technology are changing the way that healthcare markets interact with each other, and the expectations that they have about how services are provided, what services are provided, and other capabilities of healthcare market participants. These developments are creating new opportunities and new challenges and disrupting the healthcare environment. For example, during 2020, telemedicine practices became more commonly used; digital pathology is an emerging technology that may change the practice of pathology. Information technology that includes self-learning or "artificial intelligence" features is growing and may impact the healthcare industry.
Healthcare market participants, including pharmaceutical companies, health plans, clinicians, ACOs and IDNs, are striving to leverage interoperability, informatics and analytics to positively influence the health of patient populations while maintaining patient privacy.
Chronic diseases and conditions; gaps in care We believe that the cost and challenges of identifying, treating and controlling chronic diseases and conditions such as diabetes and heart disease are now well recognized. The COVID-19 pandemic called attention to gaps in care in underserved populations.
As a result of multiple factors, including increased focus on population health management and pressure to reduce the systemic costs associated with such diseases and conditions, there is increased focus on better identifying and attempting to reduce or eliminate the gaps in care historically associated with these diseases and conditions. Healthcare market participants are developing new approaches for this purpose. We believe that there also is increased focus on reducing or eliminating gaps in care in underserved populations.
Healthcare services delivery Healthcare delivery is moving out of hospitals, doctor offices and other traditional locations in which it had been provided. Care is increasingly being provided in new settings, such as outpatient, consumer-focused and home settings. In response to the COVID-19 pandemic, telemedicine practices became more commonly used during 2020. In addition, see the discussion of Emerging Retail Healthcare Providers in table 13. This dynamic offers new opportunities and challenges for healthcare providers and reflects not only efforts to take advantage of new technologies, but also the trends of consumerization and affordability, each of which are discussed above in this table.
The Value of Diagnostic Information Services
As noted in table 11, there is an increased focus on the affordability of healthcare. There also is increased focus on a disease-oriented approach to diagnostics, treatment and management. Healthcare providers, consumers and payers increasingly recognize the value of diagnostic information services as a means to improve health and reduce the overall cost of healthcare through early detection, prevention and treatment. Healthcare providers increasingly rely on diagnostic information services to help identify risk for a disease, to detect the symptoms of disease earlier, to aid in the choice of therapeutic regimen, to monitor patient compliance and to evaluate treatment results. Table 12 highlights how diagnostic information services contribute to improving care and reducing healthcare costs.
Reducing Healthcare Costs and Improving Care (Table 12)
• Identifying patients at risk for disease before they require urgent care, hospital treatment or expensive therapies
• Helping clinicians to target the right medicines for the right patients at the right time
• Identifying treatment-related side effects
• Early assessment of the efficacy of a therapy, enabling changes or discontinuation of ineffective therapies
• Enabling population health management by utilizing diagnostic information, identifying gaps in care and delivering targeted solutions to individuals who need care
• Identification and proactive management of individuals at risk for developing chronic diseases, to decrease progression and associated costs and morbidity
• Providing telemedicine services along with laboratory testing to help individuals interpret and obtain appropriate advice and referrals into needed care
Customers
We provide diagnostic information services to a broad range of customers, including those discussed below. As discussed in table 11 above, customers are consolidating, converging and diversifying. In many cases, the customer that orders our services is not responsible for paying for these services. Depending on the billing arrangement and applicable law, the payer may be the patient or a third party, such as a health plan, Medicare or a Medicaid program. Increasingly, patients are bearing greater responsibility for some portion of the payment for the services we provide to them, even if a third party is primarily responsible for payment. In addition, patients are more frequently taking advantage of offerings like the Company's QuestDirect offering, and requesting and paying for tests themselves.
Customers (Table 13)
Health plans including managed care organizations and other health insurance providers These customers typically reimburse us as a contracted (or out-of-network) provider on behalf of their members. In certain locations, health plans may delegate to IPAs or other alternative delivery systems (e.g., physician hospital organizations, ACOs, patient-centered medical homes) the ability to negotiate for diagnostic information services on behalf of certain members.
Health plans and IPAs often require that diagnostic information services providers accept discounted fee structures or assume all or a portion of the financial risk associated with providing such services through capitated payment arrangements. Under capitated payment arrangements, we provide services at a predetermined monthly reimbursement rate for each covered member, generally regardless of the number or cost of services provided by us. Under some capitated programs, we may provide certain services on a negotiated fee-for-service basis. Reimbursement under programs that do not provide for capitated payments is typically negotiated on a fee-for-service basis.
Reimbursement from our five largest health plans totaled approximately 20%, and no one health plan accounted for 10%, of our consolidated net revenues in 2020. Health plans typically negotiate directly or indirectly with a number of diagnostic information services providers, and represent approximately one-half of our total clinical testing volume and approximately 40% of our net revenues from diagnostic information services. There has been a trend of consolidation among health plans. Some health plans also have narrowed their provider networks. In addition, some health plans have established "preferred provider" networks within their broader networks, in effect distinguishing among contracted providers.
We are also sometimes a member of a “complementary network.” A complementary network generally is a set of contractual arrangements that a third party will maintain with various providers that provide discounted fees for the benefit of its customers. A member of a health plan may choose to access a non-contracted provider that is a member of a complementary network; if so, the provider will be reimbursed at a rate negotiated by the complementary network.
We offer to health plans services and programs that leverage our Company's expertise and resources, including our superior access, extensive test menu, medical staff, data, information technology solutions, and wellness and population health management capabilities.
Since the beginning of 2019, the Company has had access to a very high percentage of the insured lives in the U.S., including very strong access in key high-population states. This is the best access to health plan members that we have had in over a decade. We believe that this strong access increases our attractiveness to other customer groups, including clinicians, patients and employers.
Clinicians Clinicians, including primary care physicians, specialists and physician assistants, requiring diagnostic information services for patients are the primary referral source for our services when patients choose their diagnostic information services provider.
In recent years, there has been a marked increase in the number of physician practices owned by IDNs and hospital systems. There also has been a notable increase in some branches of medicine of the establishment of very large "rolled-up" specialty physician practice groups. Hospitals that own physician practices may encourage or require the practices to refer outreach testing to the hospital's affiliated laboratory. Large specialty physician groups may encourage their members to refer testing to other members of the group. In each case, referrals to independent diagnostic services providers may be reduced.
Clinicians determine which laboratory to recommend or use based on a variety of factors, including those set forth in table 14.
Hospitals We believe that we are the industry's leader in servicing hospitals. We provide services to hospitals throughout the United States, including advanced testing services, in some cases helping manage their laboratories and serving as the medical directors of the hospital's histology or clinical laboratory, including through our Professional Laboratory Services offerings (our industry-leading Professional Lab Services offering is discussed in table 3 above). Hospitals generally maintain an on-site laboratory to perform the significant majority of clinical testing for their patients (inpatients and outpatients) and refer certain testing to outside service providers, which typically charge the hospitals on a negotiated fee-for-service basis. Fee schedules for hospital reference testing services often are negotiated on behalf of hospitals by group purchasing organizations.
We also have joint venture arrangements with leading hospitals or IDNs in several metropolitan areas. These joint venture arrangements, which provide diagnostic information services for affiliated hospitals as well as for unaffiliated clinicians and other local healthcare providers, serve as our principal facilities in their service areas. Typically, we have either a majority ownership interest in, or day-to-day management responsibilities for, our joint venture relationships.
In light of continued pressure to reduce systemic healthcare costs, hospitals may change their approach to providing clinical testing services, including by insourcing tests, seeking ways to improve profitability or to better utilize their laboratory capacity. We believe that our combination of services positions us to be an attractive partner for hospitals, offering a full range of strategic relationships.
ACOs, DCEs and IDNs An ACO is a network of providers and facilities that share financial risk in providing or arranging for the provision of healthcare. A DCE is a healthcare provider that agrees to assume some level of financial risk for providing Medicare services. An IDN is a network of providers and facilities working together in providing or arranging for the provision of healthcare. ACOs, DCEs and IDNs have increased in number; their impact on the provision of healthcare services to date has varied.
ACOs, DCEs and IDNs may exercise operational and financial control over providers across the continuum of care, and may function as a payer. Thus, they may be able to manage the health of a population group within a defined geography, and also may be able to influence the cost and quality of healthcare delivery, for example through owned entities and through ancillary services. They may be encouraged to consider exclusive arrangements with healthcare providers, or to limit service providers.
We are actively engaging with ACOs, DCEs and IDNs to demonstrate the value of our services.
Employers Employers use tests for drugs of abuse to determine an individual's employability and his or her “fitness for duty.” Companies with high levels of employee hiring, safety conscious environments or regulatory testing requirements provide the highest volumes of testing. Factors such as the general economy, the job market and changes in the legal environment (e.g., marijuana decriminalization) can impact the utilization of drugs-of-abuse testing.
Employers also are investing in population health services. We meet their needs by providing nationwide access to our customizable services (discussed above at page 13), directly and through health plan and health improvement providers. These services help employers, employees and others manage healthcare costs, capitalize on trends in personalized health and improve health outcomes. In response to the COVID-19 pandemic, we expanded our offerings to employers to assist their pandemic response to create safer workplaces (discussed above at page 13).
We seek to grow our employer business through offering new and innovative programs to help them with their goals of (1) maintaining a safe and productive workplace, (2) improving healthcare for employees and (3) lowering healthcare costs for employees and employers.
Consumers We are well positioned to provide information and insights to patients to help them take actions to improve their healthcare. The changing expectations of patients about their healthcare and their healthcare transactions are influencing our services and the way we provide them. See the discussions of our consumer strategy at page 5 and consumerization above in table 11.
FQHCs Federally Qualified Health Centers offer a broad array of healthcare services, including to historically underserved populations. We strive to offer an attractive array of services to FQHCs to demonstrate the value of our services.
Emerging Retail Healthcare Providers In recent years, as the healthcare sector changes, retail providers of healthcare services have emerged and are growing. These providers include "big-box" retailers, pharmacy chains, supermarkets, urgent care centers and Internet-based service providers.
We are taking advantage of opportunities to work with these providers, not only to offer new access points for our services (e.g., our collaboration with Safeway), but also to grow our business by expanding our service offerings (e.g., our joint venture with Walmart). See the discussion of our consumer strategy at page 5.
Government Agencies We provide services on a fee-for-service basis to federal, state and local governmental agencies.
Historically, most Medicare and Medicaid beneficiaries were covered under the traditional Medicare and Medicaid programs administered by the federal government. Over the last several years, the federal government has expanded its contracts with private health insurance plans for Medicare beneficiaries and has encouraged such beneficiaries to switch from the traditional programs to the private programs, called “Medicare Advantage” programs. There has been growth of health insurance providers offering Medicare Advantage programs and of beneficiary enrollment in these programs. States also have mandated that Medicaid beneficiaries enroll in private managed care arrangements. During 2020, we provided additional services to and in conjunction with government agencies across the United States in connection with the COVID-19 pandemic.
Pharmaceutical companies We have expertise with laboratory developed tests for companion and complementary diagnostics, and offer an array of assets and services to support the development of companion diagnostics, including our robust data set and patient services network.
We also offer Quest Clinical Trials Connect,TM to help accelerate clinical trials (and thus the speed of drugs to market) through better patient recruitment, involvement and management, and improved physician outreach.
Other Laboratories We provide services on a fee-for-service basis to other commercial clinical laboratories.
Competition. While there has been consolidation in the diagnostic information services industry in recent years, our industry remains fragmented and highly competitive. We primarily compete with three types of clinical testing providers: commercial clinical laboratories, hospital-affiliated laboratories and physician-office laboratories. Our largest commercial clinical laboratory competitor is Laboratory Corporation of America Holdings, Inc. In addition, we compete with many smaller regional and local commercial clinical laboratories and specialized advanced laboratories. In anatomic pathology, we compete with anatomic pathology practices, including those in academic institutions and large physician group practices, and providers of emerging digital pathology solutions. There also has been a trend among specialty physician practices to establish their own histology laboratory capabilities and/or bring pathologists into their practices, thereby reducing referrals from these practices and increasing the competitive position of these practices.
Healthcare providers consider a number of factors when selecting a diagnostic information services provider.
Potential Factors Considered When Selecting a Diagnostic Information Services Provider (Table 14)
• Service capability and quality • Reputation in the medical community
• Accuracy, timeliness and consistency in reporting test results
• Healthcare information technology solutions, including connectivity options
• Access to medical/scientific thought leaders for consultation
• Patient access, including the number, convenience and geographic coverage of patient service centers
• Patient insurance coverage and experience • Ability to develop new and useful tests and services
• Number and type of tests performed • Qualifications of its staff
• Pricing and overall value • Provider office workflow
• Real time payment determination • Capabilities to support population health initiatives 0
We believe that providing the most attractive service offering in the industry, including the most comprehensive test menu, innovative test offerings, a positive customer experience, a staff including medical and scientific experts, strong quality, unparalleled access and distribution, and data-powered integrated information technology solutions provide us with a competitive advantage.
We believe that large diagnostic information services providers have a competitive advantage due to their large networks and lower cost structures, including as a result of PAMA. These advantages should enable larger providers to more effectively serve customers. In addition, we believe that consolidation in the diagnostic information services industry will continue. However, a significant portion of clinical testing is likely to continue to be performed by hospitals, which generally have affiliations with community clinicians and may have more, or more convenient, locations in a market. As a result, we compete against hospital-affiliated laboratories primarily on the basis of service capability, quality and pricing. In addition, market activity may increase the competitive environment. For example, hospital ownership of physician practices may enhance the ties of the clinicians to hospital-affiliated laboratories, enhancing the competitive position of hospital-affiliated laboratories. ACOs, DCEs and IDNs, and their approach to contracts with healthcare providers, in addition to the impact of informatics, also may impact competition to provide diagnostic information services.
The diagnostic information services industry is faced with changing technology, new product introductions and new service offerings. Competitors may compete using advanced technology, including technology that enables more convenient or cost-effective testing. Digital pathology, still in an emerging state, is an example of this. Competitors also may compete on the basis of new service offerings. Competitors also may offer testing to be performed outside of a commercial clinical laboratory, such as (1) point-of-care testing that can be performed by physicians in their offices; (2) testing that can be performed by hospitals in their own laboratories; and (3) home testing that can be carried out without requiring the services of outside providers.
The risk assessment and healthcare information technology industries are highly competitive. We have many competitors, some of which have much more extensive experience in these industries and some of which have greater resources. We compete in the risk assessment business by seeking to provide a wider array of quality, integrated services than our competitors, faster services completion and a superior applicant experience. We compete in the healthcare information technology industry by offering solutions that foster better patient care and improve performance for healthcare providers, including smaller and medium sized physician practices.
GENERAL
Human Capital Management. Creating an inspiring workplace is one of our three corporate goals, and this goal drives our approach to human capital management. Effectively managing our human capital resources is a priority with key components that include culture, safety and well-being programs, employee engagement, and development and succession planning. Our Board of Directors actively engages in oversight of our human capital management, including by receiving management reports on key areas, strategies and initiatives. Additional information about our human capital management strategies and initiatives is available in our annual corporate responsibility report.
As of January 4, 2021, we have approximately 49,000 employees, of whom approximately 40,000 are full-time and the remainder are part-time or on-call. Our employee population is more diverse than the U.S. workforce, taken as a whole. Approximately 72% of our employees globally are women; approximately 51% of our U.S. employees are people of color. A majority of our employees work directly with our customers or in our laboratories. We believe that our overall relations with our employees are good.
Culture. We strive to foster a strong culture, built on our Code of Ethics, which reinforces our commitment to integrity and aligns with our vision, values, goals and brand. We are focused on building and maintaining a culture in which all employees are empowered to raise and discuss difficult issues and valued for their strengths, experience and unique perspectives. We encourage our employees to actively participate in their communities, and support their participation, including offering incentives for participation. Our Everyday Excellence program includes guiding principles for our entire organization to support a superior customer experience and inspire employees to be their best every day, with every person and with every customer interaction; the program is integrated into performance assessments and frontline employee behavioral standards.
Safety and Well-Being. The health and safety of our employees is of paramount concern. We use a systematic, risk-based approach to develop tailored incident prevention and response programs designed to keep our employees safe in each of our diverse functional areas, and use data insights and a detailed audit program to foster the effectiveness of our programs. We have a comprehensive curriculum of annual safety training, as well as training for new employees. In 2020, our cross-functional Safely Working Together Steering Committee designed and implemented tactics, techniques and procedures to enable our colleagues to continue to work safely during the COVID-19 pandemic. As part of our comprehensive and competitive compensation and benefits program, we also offer innovative initiatives to support the well-being of our employees and their families through our HealthyQuest program. The cornerstone of our HealthyQuest program is our Blueprint for
Wellness program, which empowers our employees and their dependents with health insights based on lab and biometric data and invites them each year to take the initiative to improve their physical and mental health. We also offer other programs designed to engage employees in managing their health, including access to medical expertise and support programs tailored to their individual needs, helping them to adopt healthier behaviors and access better care at lower costs. These include customized programs for conditions such as type 2 diabetes management, chronic kidney disease, cardiovascular disease, zero-cost lab testing and specialty drugs, advocacy for mental health concerns and special support for orthopedic surgery and for cancer and other serious diagnoses. In 2020, The Health Project named Quest Diagnostics the sole winner of the prestigious C. Everett Koop National Health Award, which is given to health programs that deliver significant health improvements and business results.
Inclusion and Diversity. We understand the need to create an environment where employees can bring their whole selves to work. We aim to harness the unique mix of capabilities, talents, cultures, beliefs and experience of our employees and create a workforce that is demographically diverse at all levels of the organization. In 2020, in light of societal issues raised around us, our leadership and employees engaged squarely on the issue of racial equality in our country and the workplace. Several hundred leaders participated in a session on the topic, received a toolkit to help simulate thinking and action and how to address these issues and held dozens of meetings and panels with their teams to talk about racial inequities. We also launched, with the Quest Diagnostics Foundation, Quest for Health Equity, a multi-year, $100 million-plus initiative to help reduce health disparities in underserved communities.
Engagement. Since 1997, we have sought to foster the engagement and enablement of our employees, and have regularly surveyed our employees to gauge their engagement. Employee engagement has been a metric in the annual incentive plan for our executive officers since 2013. During 2020, we increased our engagement efforts, including by shifting to an approach of surveying employees more frequently and, during the COVID-19 pandemic, holding near-weekly meetings among hundreds of company leaders to foster increased communication across the company regarding topics of concern to employees.
Development and Succession Planning. We provide training on a wide array of topics to our employees. We also offer a number of development opportunities for our employees, such as training, mentoring and education programs, including a higher education tuition reimbursement program. In addition, we offer leadership training programs for employees at different levels, including programs designed to strengthen our more senior employee leaders to create a high-performance culture and sharpen the capabilities needed to lead our organization. We regularly engage in succession planning for our talent, including at the most senior levels.
Sales and Marketing. Our Diagnostic Information Services business has a unified commercial organization focused on the sale of most of our services. It coordinates closely with our clinical franchises (discussed above under the heading Our Strategy) and marketing organization. The commercial organization is centrally led, and is organized regionally, in conjunction with our operations organization, to focus on local customer needs and to ensure aligned delivery for our customers. Our commercial organization employs world-class processes and tools and strong management discipline. We provide industry-leading training and development, focus on opportunities with IDNs and specialty physicians, and foster a customer-focused, performance-driven culture. We also maintain distinct sales and marketing organizations for our offerings in Diagnostic Solutions and our employer drugs-of-abuse testing services.
Information Technology. We use information systems extensively in virtually all aspects of our business, including clinical testing, test ordering and reporting, billing, customer service, logistics and management of medical data. We endeavor to establish systems that create value and efficiencies for our Company and customers. The successful delivery of our services depends, in part, on the continued and uninterrupted performance of our information technology systems. We take precautionary measures to prevent problems that could affect our information technology systems.
Some of our historic growth has come through acquisitions and, as a result, we continue to use multiple information systems. We have made significant progress implementing common systems in our regional laboratories, and we continue to standardize laboratory information and billing systems across our operations. We expect that our standardization efforts will take several more years to complete, and will result in significantly more centralized systems, improved operating efficiency, more positive customer experiences and enhanced control over our operational environment. Even after we complete our efforts to standardize our historic systems, we will need to focus on standardizing systems in connection with future business acquisitions.
Quality Assurance. As discussed further under the heading Quality on page 7, our goal is to provide every patient with services and products of superior quality, and to meet that goal we have adopted the Quest Diagnostics Quality Program System. Employing root cause analysis, process improvements and rigorous tracking and measuring, we continuously seek to
enhance quality, reduce defects, further increase the efficacy and efficiency of our operations and processes, eliminate waste and help standardize operations across our Company.
In our laboratory operations, our quality assurance efforts focus on pre-analytic, analytic and post-analytic processes, including positive patient identification of specimens, appropriate specimen transport, analysis and report accuracy, proficiency testing, reference range relevance, process audits, statistical process control and personnel training for all of our laboratories and patient service centers. As part of our quality assurance program, we utilize internal and external proficiency testing, comprehensive quality control and rigorous process audits. We monitor test results to identify trends, biases or imprecision in our analytical processes. We also focus on the licensing, credentialing, training and competence of our professional and technical staff.
In addition, we have accreditation or licenses for our clinical laboratory operations from various regulatory agencies or accrediting organizations, such as CMS, CAP and certain states. All of our laboratories participate in external quality surveillance programs, including proficiency testing programs administered by CAP and several state agencies. CAP is an independent, nongovernmental organization of board-certified pathologists approved by CMS to inspect clinical laboratories to determine compliance with the standards required by CLIA. CAP offers an accreditation program to which clinical laboratories may voluntarily subscribe. All of our major laboratories, including our laboratories outside the U.S., and a number of our rapid response laboratories, are accredited by CAP. Accreditation includes on-site inspections and participation in the CAP (or equivalent) proficiency testing program. Also, our cytotechnologists and pathologists participate in an internal peer-review evaluation and one or more external individual proficiency testing programs. In addition, some of our laboratories also have International Organization for Standardization certification for their quality management systems.
For additional information about our commitment to quality, see "Our Strengths - Quality " on page 7.
Intellectual Property Rights. We own significant intellectual property, including patents, patent applications, technology, trade secrets, know-how, copyrights and trademarks in the United States and other countries. From time to time, we also license patents, patent applications, technology, trade secrets, know-how, copyrights or trademarks owned by others; we also may license our intellectual property to others. In the aggregate, our intellectual property assets and licenses are of material importance to our business. We believe, however, that no single patent, technology, trademark, intellectual property asset or license is material to our business as a whole. Our approach is to manage our intellectual property assets, to safeguard them and to maximize their value to our enterprise. We actively defend our important intellectual property assets and pursue protection of our products, processes and other intellectual property where possible.
Enterprise Risk Management Program. We maintain an enterprise risk management program designed to promote a culture of risk awareness throughout the Company's key business, operations and support functions. Our program, which is integrated with the Company’s governance, performance management and internal control frameworks, entails a formal continuous process that identifies, assesses, mitigates and manages the risks from both internal and external conditions that could significantly impact the Company and influence its business strategy and performance. The program is based on the most recent framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which focuses on the following risk types:
•Operational risk - risks arising from systems, processes, people and external events that affect the Company’s operational objectives or fundamental reason for its existence, including: product life-cycle and execution; service quality and performance; information management and data protection and security, including cybersecurity; supply chain and business disruption; and other risks, including human capital and reputation.
•Financial risk - risks arising from the Company’s ability to meet its financial obligations pursuant to its strategic and operational objectives, including exposure to broad market and more specific industry risk that could impact liquidity, interest rate, credit, pricing and reimbursement, and also to internal and external financial reporting.
•Legal and compliance risk - risks arising from the regulatory and enforcement environment, legal proceedings and adherence to ethics and compliance policies and procedures.
•Strategic risk - risks that will impede the Company’s plan to achieve its mission and vision and apply its core values, including changes in the broad market and Company's industry, business development and restructuring activities, competitive threats and practices, technology and product innovation, and public policy.
As part of our program, we routinely assess our enterprise level risks, emerging risks, overall Company-level risk tolerance and the effectiveness of risk management, and monitor the progress of and resources applied to risk mitigation; our
Board of Directors actively oversees our program. Our primary risk factors are discussed in Risk Factors beginning on page 32.
Billing; Government Reimbursement. We generally bill for diagnostic information services on a fee-for-service basis under one of two types of fee schedules; fees may be negotiated or discounted. The types of fee schedules are:
•“Client” fees charged to physicians, hospitals and institutions for which services are performed on a wholesale basis and which are billed on a monthly basis.
•“Patient” fees charged to individual patients and certain third-party payers on a claim-by-claim basis.
Billing for diagnostic information services is very complicated. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals, IDNs, ACOs, DCEs and employer groups all have different billing requirements. Some billing arrangements require us to bill multiple payers, and there are several other factors that complicate billing (e.g., disparity in coverage and information requirements among payers; incomplete or inaccurate billing information provided by ordering clinicians; and lack of access to patients before testing). We maintain compliance policies and procedures for our billing practices, and we audit our practices for compliance with applicable laws and regulations and internal policies and procedures.
With regard to the clinical testing services performed on behalf of Medicare beneficiaries, we generally must bill Medicare directly and must accept the Medicare carrier's fee schedule amount for covered services as payment in full. In addition, state Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than Medicare. Currently, Medicare does not require the beneficiary to pay a co-payment for diagnostic testing services reimbursed under the Clinical Laboratory Fee Schedule, but generally does require a patient deductible and co-insurance for anatomic pathology services.
Part B of the Medicare program contains fee schedule payment methodologies for clinical testing services performed for covered patients, including a national ceiling on the amount that carriers could pay under their local Medicare clinical testing fee schedules. Historically, the Medicare Clinical Laboratory Fee Schedule and the Medicare Physician Fee Schedule established under that program have been subject to change, including each year. Pursuant to PAMA, reimbursement rates for many clinical laboratory tests provided under Medicare were reduced in 2018, 2019 and 2020. PAMA calls for further revision of the Medicare Clinical Laboratory Fee Schedule for years after 2020, based on future surveys of market rates; reimbursement reduction from 2022-24 is capped by PAMA at 15% annually. The LAB Act provided an opportunity for reforms to PAMA by delaying PAMA's next data collection and reporting period until January 1, 2021 and by ordering a study to determine ways to improve future collection of more representative market rate data under PAMA. The CARES Act, adopted in early 2020 in response to the COVID-19 pandemic, suspended the PAMA price cuts that had been scheduled for 2021 and delayed PAMA's next data collection and reporting period until January 1, 2022.
Our net revenues reimbursed under Medicare and Medicaid in 2020 were lower as a percentage of our consolidated net revenues than in recent years as a result of revenues attributable to COVID-19 testing. Excluding revenues attributable to COVID-19 testing, our net revenues reimbursed under Medicare and Medicaid in 2020 were comparable, as a percentage of our consolidated net revenues, to recent years.
REGULATION
We are subject to extensive and frequently changing laws and regulations in the United States (at both the federal and state levels) and other jurisdictions in which we conduct business, and to government inspections and audits.
Key Regulatory Schemes (Table 16)
CLIA and State Clinical Laboratory Licensing CLIA regulates the operations of virtually all clinical laboratories, requiring that they be certified by the federal government and that they comply with various technical, operational, personnel and quality requirements intended to ensure that the services provided are accurate, reliable and timely.
State laws may require additional personnel qualifications or licenses, quality control, record maintenance, proficiency testing or detailed review of our scientific method validations and technical procedures for certain tests.
Violations of these laws and regulations may result in monetary fines, criminal and civil penalties and/or suspension or exclusion from participation in Medicare, Medicaid and other federal or state healthcare programs.
Medicare and Medicaid; Fraud and Abuse Diagnostic testing services provided under Medicare and Medicaid programs are subject to complex, evolving, stringent and frequently ambiguous federal and state laws and regulations, including those relating to billing, coverage and reimbursement.
Anti-kickback laws and regulations prohibit making payments or furnishing other benefits to influence the referral of tests billed to Medicare, Medicaid or certain other federal or state healthcare programs.
In addition, federal and state anti-self-referral laws generally prohibit Medicare and Medicaid payments for clinical tests referred by physicians who have an ownership or investment interest in, or a compensation arrangement with, the testing laboratory, unless specific exceptions are met.
Federal substance abuse legislation enacted in 2018 contains anti-kickback provisions that are, by their terms, applicable to laboratory testing paid for by all payers. We are attempting to clarify the application of that legislation.
Some states have similar laws that are not limited in applicability to only Medicare and Medicaid referrals and could also affect tests that are paid for by health plans and other non-governmental payers.
Violations of these laws and regulations may result in monetary fines, criminal and civil penalties and/or suspension or exclusion from participation in Medicare, Medicaid and other federal or state healthcare programs.
FDA The FDA has regulatory responsibility over, among other areas, instruments, software, test kits, reagents and other devices used by clinical laboratories to perform diagnostic testing in the United States. The FDA also regulates drugs-of-abuse testing for employers and insurers, testing for blood bank purposes and testing of donors of human cells for purposes such as in vitro fertilization.
A number of advanced tests we develop internally are offered as LDTs. The FDA has claimed regulatory authority over all LDTs, but has stated that it exercised enforcement discretion with regard to most LDTs performed by high complexity CLIA-certified laboratories.
Pursuant to the 21st Century Cures Act, the FDA issued final guidance regarding its position on the regulation of clinical decision software, which may be used in connection with LDTs. The guidance attempts to address uncertainty regarding whether FDA approval of certain software is required. It has been used by the FDA, in part, to assert authority over the annotation software aspects of pharmacogenetic testing services. In addition, the FDA continued during 2020 to work on a pre-certification program to help software developers have a speedier and less restrictive path to clearance or approval of their software.
Legislation introduced in Congress would enable the FDA to regulate LDTs, in vitro diagnostics, software and other items used in the diagnosis of disease. The FDA and the U. S. Department of Health and Human Services also have expressed views regarding the regulation of LDTs. Either new law or a revised approach to regulation of LDTs could have a significant impact on the clinical laboratory testing industry, including regulating LDTs in new ways, while creating avenues of opportunity and competition regarding clinical laboratory testing. New competitors may enter the industry, and competition may come in new forms.
Environmental, Health and Safety We are subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials.
For example, the U.S. Occupational Safety and Health Administration has established extensive requirements relating specifically to workplace safety for healthcare employers in the U.S. This includes requirements to develop and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any exposure through needle stick injuries.
For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of the following agencies: the U.S. Department of Transportation, the U.S. Public Health Service, the U.S. Postal Service and the International Air Transport Association.
Physicians Our pathologists are required to hold a valid license to practice medicine in the jurisdiction in which they practice.
Several jurisdictions in which our businesses are located prohibit business corporations from engaging in the practice of medicine. In certain jurisdictions, business corporations are prohibited from employing licensed healthcare professionals to provide services on behalf of the corporation; these laws vary. In some jurisdictions, anatomic pathology services are delivered through physician-owned entities that employ the practicing pathologists. The manner in which licensed physicians can be organized to perform medical services may be governed by the laws of the jurisdictions in which medical services are provided and by the medical boards or other entities authorized by these jurisdictions to oversee the practice of medicine.
Privacy and Security of Health and Personal Information We are subject to laws and regulations regarding protecting the security and privacy of certain healthcare and personal information, including: (a) the federal Health Insurance Portability and Accountability Act and the regulations thereunder, which establish (i) a complex regulatory framework including requirements for safeguarding protected health information and (ii) comprehensive federal standards regarding the uses and disclosures of protected health information; (b) state laws, including the California Consumer Privacy Act; and (c) laws outside the U.S., including the European Union's General Data Protection Regulation.
A healthcare provider may be subject to penalties for non-compliance and may be required to notify individuals or state, federal or county governments if the provider discovers certain breaches of personal information or protected health information.
Drug Testing; Controlled Substances All U.S. laboratories that perform drug testing for certain public sector employees and employees of certain federally regulated businesses are required to be certified as meeting the detailed performance and quality standards of the Substance Abuse and Mental Health Services Administration.
To obtain access to controlled substances used to perform drugs-of-abuse testing in the United States, laboratories must be licensed by the Drug Enforcement Administration.
Compliance. We strive to conduct our business in compliance with all applicable laws and regulations. We license and maintain appropriate accreditations for all of our laboratories and, where applicable, patient service centers, as required by the appropriate federal and state agencies. We have a long-standing and well-established compliance program. The Quality, Safety and Compliance Committee of our Board of Directors oversees, and receives periodic management reports regarding, our compliance program. Our program includes detailed policies and procedures and training programs intended to ensure the implementation and observance of all applicable laws and regulations (including regarding billing and reimbursement, and privacy of protected health information and personally identifiable information) and Company policies. Further, we conduct in-depth reviews of procedures and facilities to assure regulatory compliance throughout our operations. We conduct annual training of our employees on these compliance policies and procedures.
As an integral part of our billing compliance program, we investigate reported or suspected failures to comply with federal and state healthcare reimbursement requirements. Any Medicare or Medicaid overpayments resulting from non-compliance are refunded by us. As a result of these efforts, we have periodically identified and reported overpayments, refunded the payers for overpayments and taken appropriate corrective action.
AVAILABLE INFORMATION
The Securities and Exchange Commission (the “SEC”) maintains an internet site, www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. We file reports, proxy statements and other information with the SEC; they are publicly available at the SEC's internet site.
Our internet address is www.QuestDiagnostics.com. You can access our Investor Relations webpage at www.QuestDiagnostics.com/investor. The information on our website is not incorporated by reference into this Report. We make available free of charge, on or through our Investor Relations webpage, our proxy statements, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practical after such material is filed with, or furnished to, the SEC.
www.QuestDiagnostics.com/investor provides information about our corporate governance.
Information Available at Our Corporate Governance Webpage (Table 17)
• Directors
• Corporate Governance Guidelines
• Composition of the committees of our Board of Directors
• Code of Ethics
• Senior management
• Certificate of Incorporation
• Charters for the standing committees of our Board of Directors
• Bylaws
• Information about our corporate political contributions
• Values
• Statements of beneficial ownership of our equity securities filed by our directors, officers and others under Section 16 of the Exchange Act
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Executive Officers (Table 18)
Name, Age, Title Background
Stephen H. Rusckowski (63)
Chairman of the Board, Chief Executive Officer and President Mr. Rusckowski joined the Company in May 2012 as Chief Executive Officer and President and became Chairman of the Board on January 1, 2017. From October 2006 until he joined the Company, he was Chief Executive Officer of Philips Healthcare, the largest unit of Royal Philips Electronics, and a member of the Board of Management of Royal Philips Electronics and its Executive Committee. Previously, he was CEO of the Imaging Systems business of Royal Phillips Electronics.
Before joining Philips in 2001, Mr. Rusckowski held numerous management positions with the healthcare division of Hewlett-Packard/Agilent Technologies.
Mr. Rusckowski has been a director of the Company since May 2012. He was a director of Xerox Corporation from February 2015 to 2018, and a director of Covidien plc from December 2013 to January 2015. Mr. Rusckowski served as Chairman of the American Clinical Laboratory Association from 2014 to 2017.
James E. Davis (58)
Executive Vice President, General Diagnostics In January 2017, Mr. Davis became Executive Vice President, General Diagnostics; previously he was Senior Vice President and Group Executive - Regional Businesses. In January 2015, he assumed responsibility for the general management of the Company's regional Diagnostic Information Services business. Mr. Davis was responsible for our products business from February 2014 until 2016. From February 2014 to January 2015, he was responsible for operations for the Company's Diagnostic Information Services business. He joined Quest Diagnostics in April 2013 as Senior Vice President, Diagnostics Solutions, with responsibility for the healthcare information technology, risk assessment, clinical trials, diagnostic products and employer solutions businesses.
Prior to joining Quest Diagnostics, from March 2012 to April 2013, Mr. Davis served as Lead Director, and then as Chief Executive Officer, of InSightec, Inc., a medical device company that designs and develops ultrasound ablation devices that are guided by magnetic resonance imaging systems.
Previously, Mr. Davis held a number of senior positions in General Electric’s healthcare business, including from 2007 to 2012 as Vice President and General Manager of GE Healthcare’s magnetic resonance imaging business. Prior to joining GE Healthcare, Mr. Davis held leadership positions in GE’s aviation business and led the development of strategic and operational improvement initiatives for clients of McKinsey & Company, Inc.
Catherine T. Doherty (58)
Senior Vice President and Group Executive - Clinical Franchise Solutions and Marketing Since January 2013, Ms. Doherty has been responsible for overseeing the development of clinical franchise solutions in the areas of general health and wellness, cardiovascular, metabolic and endocrinology, infectious disease and immunology, and prescription drug monitoring and toxicology, as well as enterprise-wide marketing. Ms. Doherty is also responsible for the employer solutions and risk assessment businesses, and since February 2020, our sports diagnostics franchise. Additionally, in October 2018, QuestDirect, our consumer initiated testing platform was launched under her leadership. She also was responsible for clinical franchise solutions in the areas of neurology and women's health from January 2013 to January 2017 and for the healthcare information technology business from February 2014 to January 2017.
Prior to January 2013, Ms. Doherty held a variety of positions of increasing responsibility since joining the Company in 1990, including Senior Vice President, Physician Services; Vice President, Hospital Services; Vice President, Office of the Chairman; Vice President, Finance and Administration for the Hospital business; Vice President, Communications and Investor Relations; and Chief Accounting Officer.
Carrie Eglinton Manner (46)
Senior Vice President, Advanced Diagnostics Ms. Eglinton Manner joined the Company in January 2017. She is responsible for the Company's advanced testing activities, including overseeing the development of clinical franchise solutions in the areas of neurology, oncology, pathology and women's health, as well as the Company's global business and pharmaceutical/diagnostic development services. Ms. Eglinton Manner has served as a director of Repligen Corporation since June 2020.
Previously, Ms. Eglinton Manner spent over 20 years in various leadership roles in healthcare businesses at General Electric. From 2015 to 2016, she served as President and CEO of the Detection and Guidance Solutions business, delivering advanced x-ray technologies spanning the continuum of healthcare. From 2013 to 2015, Ms. Eglinton Manner served as President and CEO of OEC Surgical Mobile C-arm systems. She was President and CEO of General Electric's diagnostic pathology laboratory services business from 2012 to 2013, and President of the Maternal Infant Care Business from 2009 to 2012.
Mark J. Guinan (59)
Executive Vice President and Chief Financial Officer
Mr. Guinan joined the Company in July 2013. From 2010 until joining Quest Diagnostics in 2013, he served as Chief Financial Officer for Hill-Rom Holdings Inc., a manufacturer and provider of medical technologies and related services for the healthcare industry. Mr. Guinan has served as a director of Myovant Sciences, Ltd. since July 2018.
Previously, he had served in a number of finance and operations roles in a long career at Johnson & Johnson including 2009 to 2010 as Vice President, Chief Procurement Officer, and 2005 to 2009 as Vice President, Group Finance Pharmaceuticals. Before joining Johnson & Johnson in 1997, he held a number of financial roles at Procter & Gamble.
Manuel O. Mendez (53)
Senior Vice President, Chief Commercial Officer Mr. Mendez is responsible for the commercial organization for the Company's Diagnostic Information Services business.
Prior to joining the Company in October 2019, Mr. Méndez was Senior Vice President, Global Commercial Operations at QIAGEN, a worldwide provider of molecular sample and assay technologies, where he helped accelerate growth and led a global commercial team. From 2010-2014, Mr. Mendez served as Executive Vice President Americas for bioMérieux. Previously, he held a variety of sales, marketing and general management roles with Abbott Laboratories, Thermo Fisher Scientific and OraSure Technologies - with leadership positions in the United States, Latin America, Europe and Asian markets.
Michael E. Prevoznik (59)
Senior Vice President and General Counsel Mr. Prevoznik joined the Company as Vice President and General Counsel in August 1999. In 2003, he assumed responsibility for governmental affairs. From 1999 until April 2009, Mr. Prevoznik also had responsibility for the Company's Compliance Department.
In addition, from April 2011 to January 2017, he had management responsibility for the Company's diagnostic information services activities outside the U.S., and from April 2011 to January 2013, he had management responsibility for the Company's clinical trials business.
Prior to joining the Company, Mr. Prevoznik served in positions of increasing responsibility within the compliance organization at SmithKline Beecham, most recently as Vice President, Compliance, with responsibility for coordinating all SmithKline Beecham compliance activities worldwide.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
You should carefully consider all of the information set forth in this Report, including the following risk factors, before deciding to invest in any of our securities. The risks below are not the only ones that we face. Additional risks not presently known to us, or that we presently deem immaterial, may also negatively impact us. Our business, consolidated financial condition, revenues, results of operations, profitability, reputation or cash flows could be materially impacted by any of these factors.
This Report also includes forward-looking statements that involve risks or uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face described below and elsewhere. See “Cautionary Factors that May Affect Future Results” on page 42.
RISKS RELATED TO OUR BUSINESS
The U.S. healthcare system is evolving and medical laboratory testing market fundamentals are changing, and our business could be adversely impacted if we fail to adapt.
The U.S. healthcare system is evolving, in part in response to the ACA. The ACA established the Center for Medicare and Medicaid Innovation to examine alternative payment methodologies and conduct demonstration programs. The ACA provided for extensive health insurance reforms, including the elimination of pre-existing condition exclusions and other limitations on coverage, fixed percentages on medical loss ratios, expansion in Medicaid and other programs, employer mandates, individual mandates, creation of state and regional health insurance exchanges, and tax subsidies for individuals to help cover the cost of individual insurance coverage. The ACA also permits the establishment of ACOs.
Certain aspects of the ACA have been repealed, delayed or modified. The scope and timing of any further legislation to repeal, amend, replace, or reform the rest of the ACA is uncertain, but if such legislation were to become law, it could have a significant impact on the U.S. healthcare system. In addition, uncertainty regarding the status of the ACA prior to any such repeal, amendment, replacement or reform could create uncertainty generally in the healthcare market.
Several federal courts have issued determinations that portions of the ACA are unconstitutional; those rulings are net yet final.
Significant change is taking place in the healthcare system, including as discussed above under the heading The Clinical Testing Industry, beginning on page 14. For example, value-based reimbursement is increasing (e.g., UnitedHealthcare's Preferred Lab Network); CMS has set goals for value-based reimbursement to be achieved. Patients are encouraged to take increased interest in and responsibility for, and often are bearing increased responsibility for payment for, their healthcare. Healthcare industry participants are evolving and consolidating. Healthcare services increasingly are being provided by non-traditional providers (e.g., physician assistants), in non-traditional venues (e.g., retail medical clinics, urgent care centers) and using new technologies (e.g., telemedicine, digital pathology). Utilization of the healthcare system is being influenced by several factors and may result in a decline in the demand for diagnostic information services.
In addition, we believe that clinical testing market fundamentals are changing. We believe that PAMA-driven reimbursement pressure is negatively impacting access to care and hurting the clinical testing industry, and remains a catalyst for structural change in the market. We also believe that health plans increasingly are focusing on driving better value in laboratory testing services. We also believe that ongoing consumerization in healthcare, with increased cost being borne by consumers, is sharpening focus on price disparities. We expect that the evolution of the healthcare industry will continue, and that industry change is likely to be extensive.
The clinical testing business is highly competitive, and if we fail to provide an appropriately priced level of service or otherwise fail to compete effectively it could have a material adverse effect on our revenues and profitability.
The clinical testing business remains a fragmented and highly competitive industry. We primarily compete with three types of clinical testing providers: other commercial clinical laboratories, hospital-affiliated laboratories and physician-office laboratories. We also compete with other providers, including anatomic pathology practices and large physician group practices. Hospitals generally maintain on-site laboratories to perform testing on their patients (inpatient or outpatient). In addition, many hospitals compete with commercial clinical laboratories for outreach (non-hospital patients) testing. Hospitals may seek to leverage their relationships with community clinicians and encourage the clinicians to send their outreach testing to the hospital's laboratory. As a result of this affiliation between hospitals and community clinicians, we compete against hospital-affiliated laboratories primarily based on quality and scope of service as well as pricing. In addition, hospitals that own physician practices may encourage or require the practices to refer testing to the hospital's laboratory. In recent years, there has been a trend of hospitals acquiring physician practices, increasing the percentage of physician practices owned by hospitals. Increased hospital ownership of physician practices may enhance clinician ties to hospital-affiliated laboratories and may strengthen their competitive position. The formation of ACOs, DCEs and IDNs, and their approach to contracts with healthcare providers, in addition to the impact of informatics, also may increase competition to provide diagnostic information services. In addition, new players have recently started to provide clinical lab testing services (e.g., employers; government agencies).
The diagnostic information services industry also is faced with changing technology and new product introductions. Competitors may compete using advanced technology, including technology that enables more convenient or cost-effective testing. Digital pathology, still in an emerging state, is an example of this. Competitors also may compete on the basis of new service offerings. Competitors also may offer testing to be performed outside of a commercial clinical laboratory, such as (1) point-of-care testing that can be performed by physicians in their offices; (2) advanced testing that can be performed by hospitals in their own laboratories; and (3) home testing that can be carried out without requiring the services of outside providers.
Government payers, such as Medicare and Medicaid, have taken steps to reduce the utilization and reimbursement of healthcare services, including clinical testing services.
We face efforts by government payers to reduce utilization of and reimbursement for diagnostic information services. One example of this is increased use of prior authorization requirements. We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical test services will continue.
Pursuant to PAMA, reimbursement rates for many clinical laboratory tests provided under Medicare were reduced in 2018, 2019 and 2020. PAMA calls for further revision of the Medicare Clinical Laboratory Fee Schedule for years after 2020, based on future surveys of market rates; reimbursement rate reduction from 2022-24 is capped by PAMA at 15% annually. The LAB Act provides an opportunity for reforms to PAMA by delaying PAMA's next data collection and reporting period until January 1, 2021 and by ordering a study to determine ways to improve future collection of more representative market rate data under PAMA. The CARES Act, adopted in early 2020 in response to the COVID-19 pandemic, suspended the PAMA price cuts that had been scheduled for 2021 and delayed PAMA's next data collection and reporting period until January 1, 2022.
In addition, CMS has adopted policies limiting or excluding coverage for clinical tests that we perform. We also provide physician services that are reimbursed by Medicare under a physician fee schedule, which is subject to adjustment on an annual basis. Medicaid reimbursement varies by state and is subject to administrative and billing requirements and budget pressures. The ACA includes further provisions that are designed to control utilization and payment levels.
In addition, over the last several years, the federal government has expanded its contracts with private health insurance plans for Medicare beneficiaries, called “Medicare Advantage” programs, and has encouraged such beneficiaries to switch from the traditional programs to the private programs. There has been growth of health insurance plans offering Medicare Advantage programs, and of beneficiary enrollment in these programs. States have mandated that Medicaid beneficiaries enroll in private managed care arrangements. In addition, state budget pressures have encouraged states to consider several courses of action that may impact our business, such as delaying payments, reducing reimbursement, restricting coverage eligibility, denying claims and service coverage restrictions.
From time to time, the federal government has considered whether competitive bidding could be used to provide clinical testing services for Medicare beneficiaries at attractive rates while maintaining quality and access to care. Congress periodically considers cost-saving initiatives. These initiatives have included coinsurance for clinical testing services, co-payments for clinical testing and further laboratory fee schedule reductions.
Health plans and other third parties have taken steps to reduce the utilization and reimbursement of health services, including clinical testing services.
We face efforts by non-governmental third-party payers, including health plans, to reduce utilization of and reimbursement for clinical testing services. Examples include increased use of prior authorization requirements and increased denial of coverage for services. Since the passage of ACA, there is increased market activity regarding alternative payment models, including bundled payment models. We expect continuing efforts by third-party payers, including in their rules, practices and policies, to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical testing services. ACOs, DCEs and IDNs also may undertake efforts to reduce utilization of, or reimbursement for, diagnostic information services.
The healthcare industry has experienced a trend of consolidation among health insurance plans, resulting in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical testing providers. These health plans, and independent physician associations, may demand that clinical testing providers accept discounted fee structures or assume all or a portion of the financial risk associated with providing testing services to their members through capitated payment arrangements. Some health plans also are reviewing test coding, evaluating coverage decisions and requiring preauthorization of certain testing. There are also an increasing number of patients enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing.
The increased consolidation among health plans also has increased pricing transparency and bargaining power and the potential adverse impact of ceasing to be a contracted provider with any such insurer.
Government payers and third parties, including health plans, may establish reimbursement levels that do not properly recognize the value of new and innovative solutions.
Government payers and third parties, including health plans, are taking steps to reduce utilization of, and reimbursement for, some new and innovative healthcare solutions, including new tests and other solutions that we may offer.
In response to requests from payers to have a strategy to report a single or at most a few codes to describe procedures used to perform molecular and toxicology testing, the American Medical Association CPT® Editorial Panel has established and replaced billing codes used to report those procedures. The adoption of these revised codes has resulted in limited coverage decisions on certain occasions, new requirements for documentation to facilitate payment from certain payers and increased payment denials. While some payers have adopted the new payment methods, others have not yet modified their systems and ask that laboratories continue to report their services using the previous reporting strategies, when those codes still exist.
These steps may discourage innovation and access to innovative solutions that we may offer.
Failure to develop, or acquire licenses for, new tests, technology and services could negatively impact our testing volume and revenues.
The diagnostic information services industry is faced with changing technology and new product introductions. Other companies or individuals, including our competitors, may obtain patents or other property rights that would prevent, limit or interfere with our ability to develop, perform or sell our solutions or operate our business or increase our costs. In addition, they could introduce new tests, technologies or services that may result in a decrease in the demand for our services or cause us to reduce the prices of our services. Our success in continuing to introduce new solutions, technology and services will depend, in part, on our ability to license new and improved technologies on favorable terms. We may be unable to develop or introduce new solutions or services. Other companies or individuals, including our competitors, may obtain patents or other property rights on tests or processes that we may be performing, that could prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business. We also may be unable to continue to negotiate acceptable licensing arrangements, and arrangements that we do conclude may not yield commercially successful clinical tests. If we are unable to license these testing methods at competitive rates, our research and development costs may increase as a result. In addition, if we are unable to develop and introduce, or license, new solutions, technology and services to expand our advanced testing capabilities, our services may become outdated when compared with our competition.
Failure to establish, and perform to, appropriate quality standards to assure that the appropriate standard of quality is observed in the performance of our diagnostic information services could adversely affect the results of our operations and adversely impact our reputation.
The provision of diagnostic information services involves certain inherent risks. The services that we provide are intended to provide information for healthcare providers in providing patient care. Therefore, users of our services may have a greater sensitivity to errors than the users of services or products that are intended for other purposes.
Negligence in performing our services can lead to injury or other adverse events. We may be sued under physician liability or other liability law for acts or omissions by our pathologists, laboratory personnel and hospital employees who are under the supervision of our hospital-based pathologists. We are subject to the attendant risk of substantial damages awards and risk to our reputation.
RISKS RELATED TO CHANGE IN PUBLIC POLICY
AND THE REGULATORY AND LEGAL ENVIRONMENT
We are subject to numerous legal and regulatory requirements governing our activities, and we may face substantial fines and penalties, and our business activities may be impacted, if we fail to comply.
Our business is subject to or impacted by extensive and frequently changing laws and regulations in the United States (including at both the federal and state levels) and the other jurisdictions in which we engage in business. While we seek to conduct our business in compliance with all applicable laws, many of the laws and regulations applicable to us are vague or indefinite and have not been interpreted by the courts, including many of those relating to:
•billing and reimbursement of clinical testing;
•certification or licensure of clinical laboratories;
•the anti-self-referral and anti-kickback laws and regulations;
•the laws and regulations administered by the FDA;
•the corporate practice of medicine;
•operational, personnel and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely;
•physician fee splitting;
•relationships with physicians and hospitals;
•safety and health of laboratory employees; and
•handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials.
These laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including our pricing and/or billing practices. We may not be able to maintain, renew or secure required permits, licenses or any other regulatory approvals needed to operate our business or commercialize our services. If we fail to comply with applicable laws and regulations, or if we fail to maintain, renew or obtain necessary permits, licenses and approvals, we could suffer civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third-party claims. If any of the foregoing were to occur, our reputation could be damaged and important business relationships with third parties could be adversely affected.
We regularly receive requests for information, and occasionally subpoenas, from governmental authorities. We also are subject from time to time to qui tam claims brought by former employees or other “whistleblowers.” The federal and state governments continue aggressive enforcement efforts against perceived healthcare fraud. Legislative provisions relating to healthcare fraud and abuse provide government enforcement personnel substantial funding, powers, penalties and remedies to pursue suspected cases of fraud and abuse. In addition, the government has substantial leverage in negotiating settlements since the amount of potential damages far exceeds the rates at which we are reimbursed for our services, and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid programs. Regardless of merit or eventual outcome, these types of investigations and related litigation can result in:
•diversion of management time and attention;
•expenditure of large amounts of cash on legal fees, costs and payment of damages;
•increases to our administrative, billing or other operating costs;
•limitations on our ability to continue some of our operations;
•enforcement actions, fines and penalties or the assertion of private litigation claims and damages;
•decreases to the amount of reimbursement related to diagnostic information services performed;
•adverse affects to important business relationships with third parties;
•decreased demand for our services; and/or
•injury to our reputation.
Changes in applicable laws and regulations may result in existing practices becoming more restricted, or subject our existing or proposed services to additional costs, delay, modification, withdrawal or reconsideration. Such changes also could require us to modify our business objectives.
Our business could be adversely impacted by the FDA's approach to regulation.
The FDA has regulatory responsibility over, among other areas, instruments, software, test kits, reagents and other devices used by clinical laboratories to perform diagnostic testing in the U.S. A number of tests we develop internally are offered as LDTs. The FDA has claimed regulatory authority over all LDTs, but has stated that it exercised enforcement discretion with regard to most LDTs performed by high complexity CLIA-certified laboratories.
As the FDA moves to regulate more clinical laboratory testing, its approach to regulation is impacting industry practices and participants, new competitors may enter the industry, and competition may come in new forms.
Legislation introduced in Congress would enable the FDA to regulate LDTs, in vitro diagnostics, software and other items used in the diagnosis of disease. The FDA and the U. S. Department of Health and Human Services also have expressed views regarding the regulation of LDTs. Either new law or a revised approach to regulation of LDTs could have a significant impact on the clinical laboratory testing industry, including regulating LDTs in new ways, while creating avenues of opportunity and competition regarding clinical laboratory testing. New competitors may enter the industry, and competition may come in new forms.
Pursuant to the 21st Century Cures Act, the FDA issued final guidance regarding its position on the regulation of clinical decision software, which may be used in connection with LDTs. The guidance attempts to clarify whether FDA approval of certain software is required. It has been used by the FDA, in part, to assert authority over the annotation software aspects of pharmacogenetic testing services. In addition, the FDA continued during 2020 to work on a pre-certification program to help software developers have a speedier and less restrictive path to clearance or approval of their software.
Failure to accurately bill for our services, or to comply with applicable laws relating to government healthcare programs, could have a material adverse effect on our business.
Billing for diagnostic information services is complex and subject to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable law, we bill various payers, such as patients, insurance companies, Medicare, Medicaid, clinicians, hospitals and employer groups. The majority of billing and related operations for our Company are being provided by a third party under the Company's oversight. Failure to accurately bill for our services could have a material adverse effect on our business. In addition, failure to comply with applicable laws relating to billing government healthcare programs may result in various consequences, including: civil and criminal fines and penalties, exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to operate our business, as well as incur additional liabilities from third-party claims, all of which could have a material adverse effect on our business. Certain violations of these laws may also provide the basis for a civil remedy under the federal False Claims Act, including fines and damages of up to three times the amount claimed. The qui tam provisions of the federal False Claims Act and similar provisions in certain state false claims acts allow private individuals to bring lawsuits against healthcare companies on behalf of government payers, private payers and/or patients alleging inappropriate billing practices.
Although we believe that we are in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion. The federal or state government may bring claims based on our current practices, which we believe are lawful. The federal and state governments have substantial leverage in negotiating settlements since the amount of potential damages and fines far exceeds the rates at which we are reimbursed, and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid programs. We believe that federal and state governments continue aggressive enforcement efforts against perceived healthcare fraud. Legislative provisions relating to healthcare fraud and abuse provide government enforcement personnel with substantial funding, powers, penalties and remedies to pursue suspected cases of fraud and abuse.
We are subject to numerous political, legal, operational and other risks as a result of our international operations which could impact our business in many ways.
Our international operations increase our exposure to risks inherent in doing business in non-U.S. markets, which may vary by market and include: intellectual property legal protections and remedies; weak legal systems which may affect our ability to enforce contractual rights; trade regulations and procedures and actions affecting approval, production, pricing, reimbursement and marketing of services; and challenges based on differing languages and cultures. International operations also require us to devote management resources to implement our controls and systems in new markets, and to comply with the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws in non-U.S. jurisdictions.
We may be unable to obtain, maintain or enforce our intellectual property rights and may be subject to intellectual property litigation that could adversely impact our business.
We may be unable to obtain or maintain adequate patent or other proprietary rights for our solutions or services or to successfully enforce our proprietary rights. In addition, we may be subject to intellectual property litigation and we may be found to infringe on the proprietary rights of others, which could force us to do one or more of the following:
•cease developing, performing or selling solutions or services that incorporate the challenged intellectual property;
•obtain and pay for licenses from the holder of the infringed intellectual property right;
•redesign or re-engineer our tests;
•change our business processes; or
•pay substantial damages, court costs and attorneys' fees, including potentially increased damages for any infringement held to be willful.
Adverse results in material litigation could have an adverse financial impact and an adverse impact on our client base and reputation.
We are involved in various legal proceedings arising in the ordinary course of business including, among other things, disputes as to intellectual property, professional liability and employee-related matters, as well as inquiries from governmental agencies and Medicare or Medicaid carriers. Some proceedings against us involve claims that are substantial in amount and could divert management's attention from operations. These proceedings also may result in substantial monetary damages.
RISKS RELATED TO OUR INDEBTEDNESS
Our outstanding debt may impair our financial and operating flexibility.
As of December 31, 2020, we had approximately $4.0 billion of debt outstanding. Other than credit facilities in the normal course of business, we do not have any off-balance sheet financing arrangements in place or available. Our debt agreements contain various restrictive covenants. These restrictions could limit our ability to use operating cash flow in other areas of our business because we must use a portion of these funds to make principal and interest payments on our debt. We have obtained ratings on our public debt from Standard and Poor's, Moody's Investor Services and Fitch Ratings. There can be no assurance that any rating so assigned will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if in that rating agency's judgment future circumstances relating to the basis of the rating, such as adverse changes in our Company or our industry, so warrant. If such ratings are lowered, our borrowing costs could increase. Changes in our credit ratings, however, do not require repayment or acceleration of any of our debt.
We or our subsidiaries may incur additional indebtedness in the future. Our ability to make principal and interest payments will depend on our ability to generate cash in the future. If we incur additional debt, a greater portion of our cash flows may be needed to satisfy our debt service obligations and if we do not generate sufficient cash to meet our debt service requirements, we may need to seek additional financing. In that case, it may be more difficult, or we may be unable, to obtain financing on terms that are acceptable to us. As a result, we would be more vulnerable to general adverse economic, industry and capital markets conditions as well as the other risks associated with indebtedness.
RISKS RELATED TO OUR OPERATIONS
The development of new technologies (including artificial intelligence technologies) may impact the healthcare industry, and the development of new, more cost-effective solutions that can be performed by our customers or by patients, and the continued internalization of testing by hospitals or clinicians, could negatively impact our testing volume and revenues.
The diagnostic information services industry is faced with changing technology and new product introductions, including technology that enables more convenient or cost-effective testing. For example, digital pathology is an emerging technology that may change the practice of pathology. Information technology that includes self-learning or "artificial intelligence" features is growing and may impact the healthcare industry.
Competitors also may offer testing to be performed outside of a commercial clinical laboratory, such as (1) point-of-care testing that can be performed by clinicians in their offices; (2) complex testing that can be performed by hospitals in their own laboratories; and (3) home testing that can be carried out without requiring the services of outside providers. Advances in technology also may lead to the need for less frequent testing. Further, diagnostic tests approved or cleared by the FDA for home use are automatically deemed to be “waived” tests under CLIA and may be performed by patients in their homes; test kit manufacturers could seek to increase sales to patients of such test kits.
Some traditional customers for anatomic pathology services, including specialty physicians that generate biopsies through surgical procedures, such as dermatologists, gastroenterologists, urologists and oncologists, are consolidating, have added in-office histology labs or have retained pathologists to read cases on site. Hospitals also are internalizing clinical laboratory testing, including some non-routine and advanced testing. Internalization of testing may reduce demand for services previously referred to outside service providers, such as the Company.
Hardware and software failures or delays in our information technology systems, including failures resulting from our systems conversions or otherwise, could disrupt our operations and cause the loss of confidential information, customers and business opportunities or otherwise adversely impact our business.
IT systems are used extensively in virtually all aspects of our business, including clinical testing, test reporting, billing, customer service, logistics and management of medical data. Our success depends, in part, on the continued and uninterrupted performance of our IT systems. A failure or delay in our IT systems could impede our ability to serve our customers and patients and protect their confidential data. Despite redundancy and backup measures and precautions that we have implemented, our IT systems may be vulnerable to damage, disruptions and shutdown from a variety of sources, including telecommunications or network failures, system conversion or standardization initiatives, human acts and natural disasters. These issues can also arise as a result of failures by third parties with whom we do business and over which we have limited control. Any disruption or failure of our IT systems could have a material impact on our ability to serve our customers and patients, including negatively affecting our reputation in the marketplace.
Our business could be negatively affected if we are unable to continue to strengthen our efficiency.
It is important that we continue to strengthen our efficiency to promote our competitive position and to enable us to mitigate the impact on our profitability of steps taken by government payers and health insurers to reduce the utilization and reimbursement of healthcare services, including diagnostic information services.
Our business operations and reputation may be materially impaired if we do not comply with privacy laws or information security policies.
In our business, we collect, generate, process or maintain sensitive information, such as patient data and other personal information. If we do use or not adequately safeguard that information in compliance with applicable requirements under federal, state and international laws, or if it were disclosed to persons or entities that should not have access to it, our business could be materially impaired, our reputation could suffer and we could be subject to fines, penalties and litigation. In the event of a data security breach, we may be subject to notification obligations, litigation and governmental investigation or sanctions, and may suffer reputational damage, which could have an adverse impact on our business.
We are subject to laws and regulations regarding protecting the security and privacy of certain healthcare and personal information, including: (a) the federal Health Insurance Portability and Accountability Act and the regulations thereunder, which establish (i) a complex regulatory framework including requirements for safeguarding protected health information and (ii) comprehensive federal standards regarding the uses and disclosures of protected health information; (b) state laws, including the California Consumer Privacy Act; and (c) laws outside the U.S., including the European Union's General Data Protection Regulation.
The IT systems that we rely on may be subject to unauthorized tampering, cyberattack or other security breach.
Our IT systems have been and are subject to potential cyberattacks, tampering or other security breaches. These attacks, if successful, could result in shutdowns or significant disruptions of our IT systems and/or in unauthorized persons misappropriating intellectual property and other confidential information, including patient data that we obtain, transmit and store on and through our IT systems.
External actors may develop and deploy viruses and other malicious software programs, including those that target our employees, designed to attack our IT systems or otherwise exploit security vulnerabilities, such as electronic spamming, phishing, spear phishing or similar tactics. As a result of the difficulty in detecting many of these attacks, intrusions and breaches, failures or losses may be repeated or compounded before they are discovered or rectified, which could further increase these costs and consequences.
From time to time, our IT systems have experienced other attacks, viruses, attempted intrusions or similar problems, but each was mitigated. None materially disrupted, interrupted, damaged or shutdown the company's IT systems, materially disrupted the Company's performance of its business or, to the Company's knowledge, resulted in material unauthorized access to data.
In addition, certain third parties to whom we outsource certain of our services or functions, or with whom we interface, store or process our confidential patient data or other confidential information, as well as those third parties’ providers, are also subject to the risks outlined above. A breach or attack affecting these third parties could also harm our business, results of operations and reputation and subject us to liability.
On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”), informed the Company and Optum360 LLC, which provides revenue management services to the Company, about a data security incident involving AMCA (the “AMCA Data Security Incident”). AMCA (which provided debt collection services for Optum360) informed the Company and Optum360 that AMCA had learned that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed us that information pertaining to other laboratories’ customers was also affected.
Although the Company has robust security measures implemented, which are monitored and routinely tested both by internal resources and external parties, cyber threats against us or our third party providers continue to evolve and are often not recognized until such attacks are launched against a potential target. There can be no assurance that the Company or its third party providers can anticipate all such evolving future attacks, viruses or intrusions, implement adequate preventative measures, nor remediate any security vulnerabilities. Such breaches could expose our or our third party providers' IT systems to attack, which could result in major disruption of our business, and compromise our customer’s confidential information, result in litigation and potential liability for the Company, government investigation, significant damage to our reputation or otherwise adversely affect our business. Any mitigation or remediation efforts that we undertake may require expenditures of significant resources and the diversion of the attention of management.
We have taken, and continue to take, precautionary measures to reduce the risk of, and detect and respond to, future cyber threats, and prevent or minimize vulnerabilities in our IT systems, including the loss or theft of intellectual property, patient data or other confidential information that we obtain and store on our systems. We also have taken, and will continue to take, measures to assess the cybersecurity protections used by our third-party providers. In addition, we collaborate with government agencies regarding potential cyber threats and have worked with firms that have cyber security expertise to evaluate and strengthen our systems. There can be no assurances that our precautionary measures or measures used by our third-party providers will prevent, contain or successfully defend against cyber or information security threats that could have a significant impact on our business, results of operations and reputation and subject us to liability.
Our ability to attract and retain qualified employees is critical to the success of our business and the failure to do so may materially adversely affect our performance.
Our people are a critical resource. The supply of qualified personnel may be limited and competition for qualified employees is strong. We may lose, or fail to attract and retain, key management personnel, or qualified skilled technical or professional employees (e.g., pathologists).
Business development activities are inherently risky and integrating our operations with businesses we acquire may be difficult.
We plan selectively to enhance our business from time to time through business development activities, such as acquisitions, licensing arrangements, investments and alliances. However, these plans are subject to the availability of appropriate opportunities and competition from other companies seeking similar opportunities. Moreover, the success of any such effort may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity, and to integrate it into our business. The success of our strategic alliances depends not only on our contributions and capabilities, but also on the property, resources, efforts and skills contributed by our strategic partners. Further, disputes may arise with strategic partners, due to conflicting priorities or conflicts of interests.
Acquisitions are not all the same (e.g., asset acquisitions differ from acquisitions of equity interests); different acquisitions offer different risks. Acquisitions may involve the integration of a separate company that has different systems, processes, policies and cultures. Integration of acquisitions involves a number of risks including the diversion of management's attention to the assimilation of the operations of assets or businesses we have acquired, difficulties in the integration of operations and systems and the realization of potential operating synergies, the assimilation and retention of the personnel of the acquired businesses, challenges in retaining the customers of the combined businesses, and potential adverse effects on operating results. The process of combining acquisitions may be disruptive to our businesses and may cause an interruption of, or a loss of momentum in, such businesses as a result of the following difficulties, among others:
•loss of key customers or employees;
•difficulty in standardizing information and other systems;
•difficulty in consolidating facilities and infrastructure;
•failure to maintain the quality or timeliness of services that our Company has historically provided;
•diversion of management's attention from the day-to-day business of our Company as a result of the need to deal with the foregoing disruptions and difficulties; and
•the added costs of dealing with such disruptions.
If we are unable successfully to integrate strategic acquisitions in a timely manner, our business and our growth strategies could be negatively affected. Even if we are able to successfully complete the integration of the operations of other assets or businesses we may acquire in the future, we may not be able to realize all or any of the benefits that we expect to result from such integration, either in monetary terms or in a timely manner.
Our operations may be adversely impacted by the effects of natural disasters such as hurricanes and earthquakes, public health emergencies and health pandemics, hostilities or acts of terrorism and other criminal activities.
Our operations may be adversely impacted by the effects of natural disasters such as hurricanes and earthquakes, public health emergencies and health pandemics, hostilities or acts of terrorism or other criminal activities. Such events may result in a decline in the number of patients who seek clinical testing services or in our employees' ability to perform their job duties. In addition, such events may interrupt our ability to transport specimens, to receive materials from our suppliers or otherwise to provide our services.
The COVID-19 pandemic has significantly affected our consolidated results of operations, financial position and cash flows, and may continue to do so.
A pandemic caused by a novel strain of coronavirus (COVID-19) continues to severely impact the economy of the United States and other countries around the world. Federal, state and local governmental authorities in the United States have implemented numerous policies and initiatives to try and reduce the transmission of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. These policies and initiatives have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), increased unemployment and loss of healthcare insurance, and the adoption of work-from-home policies, all of which have had, and we believe will continue to have, an impact on our consolidated results of operations, financial position and cash flows.
Due to the COVID-19 pandemic, we have experienced significant volatility, including periods of material decline compared to prior year periods, in testing volume in our base business (which excludes COVID-19 molecular and antibody testing) and this volatility, including periods of material decline, could continue. Although we also have experienced heavy demand for COVID-19 molecular testing as a result of the COVID-19 pandemic, which has had a positive impact on our overall testing volume, the duration and level of the demand for, and reimbursement for, COVID-19 molecular testing is uncertain. We may also experience an adverse impact on cash collections and supply chain disruptions, including shortages, delays and price increases in testing equipment and supplies, as a result of the impact of the COVID-19 pandemic. Any of these events could have an adverse impact on our business, consolidated results of operation, financial position and cash flows.
We believe the COVID-19 pandemic’s adverse impact on our consolidated results of operations, financial position and cash flows will be primarily driven by: the severity and duration of the COVID-19 pandemic; the COVID-19 pandemic’s impact on the U.S. healthcare system and the U.S. economy; the timing, scope and effectiveness of federal, state and local governmental responses; and the ability to effectively and comprehensively administer COVID-19 vaccines across the U.S. These primary drivers are beyond our knowledge and control and will change over time, and as a result, at this time we cannot reasonably estimate the adverse impact the COVID-19 pandemic will have on our businesses, consolidated results of operations, financial position and cash flows, and the adverse impact may be material.
Our business also may be impacted by changes in the severity of the COVID-19 pandemic at different times in the various cities and regions where we operate and offer services, and by challenges faced in implementing nationwide COVID-19 vaccinations. Even after the COVID-19 pandemic has moderated and the business and social distancing restrictions have eased, we may continue to experience similar adverse effects to our businesses, consolidated results of operations, financial position and cash flows resulting from a recessionary economic environment that may persist. The impact that the COVID-19 pandemic will have on our businesses, consolidated results of operations, financial position and cash flows could exacerbate other risks identified in this Report.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this document. The following important factors could cause our actual financial results to differ materially from those projected, forecasted or estimated by us in forward-looking statements:
(a) Heightened competition from commercial clinical testing companies, hospitals, physicians and others.
(b) Increased pricing pressure from customers, including payers and patients.
(c) A decline in economic conditions.
(d) Impact of changes in payment mix, including increased patient financial responsibility and any shift from fee-for-service to discounted, capitated or bundled fee arrangements.
(e) Adverse actions by government or other third-party payers, including healthcare reform that focuses on reducing healthcare costs but does not recognize the value and importance to healthcare of clinical testing or innovative solutions, unilateral reduction of fee schedules payable to us, unilateral recoupment of amounts allegedly owed and competitive bidding.
(f) The impact upon our testing volume and collected revenue or general or administrative expenses resulting from compliance with policies and requirements imposed by Medicare, Medicaid and other third-party payers. These include:
(1) the requirements of government and other payers to provide diagnosis codes and other information for many tests;
(2) inability to obtain from patients a valid advance consent form for tests that cannot be billed without prior receipt of the form;
(3) the impact of additional or expanded limited coverage policies and limits on the allowable number of test units or ordering frequency of same; and
(4) the impact of increased prior authorization programs.
(g) Adverse results from pending or future government investigations, lawsuits or private actions. These include, in particular, monetary damages, loss or suspension of licenses, and/or suspension or exclusion from the Medicare and Medicaid programs and/or criminal penalties.
(h) Failure to efficiently integrate acquired businesses and to manage the costs related to any such integration, or to retain key technical, professional or management personnel.
(i) Denial, suspension or revocation of CLIA certification or other licenses for any of our clinical laboratories under the CLIA standards, revocation or suspension of the right to bill the Medicare and Medicaid programs or other adverse regulatory actions by federal, state and local agencies.
(j) Changes in and complexity of federal, state or local laws or regulations, including changes that result in new or increased federal or state regulation of commercial clinical laboratories, tests developed by commercial clinical laboratories or other products or services that we offer or activities in which we are engaged, including regulation by the FDA.
(k) Inability to achieve expected benefits from our acquisitions of other businesses.
(l) Inability to achieve additional benefits from our business performance tools and efficiency initiatives.
(m) Adverse publicity and news coverage about the diagnostic information services industry or us.
(n) Failure of the Company to maintain, defend and secure its financial, accounting, technology, customer data and other operational systems from cyberattacks, IT system outages, telecommunications failures, malicious human acts and failure of the systems of third parties upon which the Company relies.
(o) Development of technologies that substantially alter the practice of clinical testing, including technology changes that lead to the development of more convenient or cost-effective testing, or testing to be performed outside of a commercial clinical laboratory, such as (1) point-of-care testing that can be performed by physicians in their offices, (2) advanced testing that can be performed by hospitals in their own laboratories or (3) home testing that can be carried out without requiring the services of clinical laboratories.
(p) Negative developments regarding intellectual property and other property rights that could prevent, limit or interfere with our ability to develop, perform or sell our tests or operate our business. These include:
(1) issuance of patents or other property rights to our competitors or others; and
(2) inability to obtain or maintain adequate patent or other proprietary rights for our products and services or to successfully enforce our proprietary rights.
(q) Development of tests by our competitors or others which we may not be able to license, or usage (or theft) of our technology or similar technologies or our trade secrets or other intellectual property by competitors, any of which could negatively affect our competitive position.
(r) Regulatory delay or inability to commercialize newly developed or licensed tests or technologies or to obtain appropriate reimbursements for such tests.
(s) The complexity of billing and revenue recognition for clinical laboratory testing.
(t) Increases in interest rates and negative changes in our credit ratings from Standard & Poor's, Moody's Investor Services or Fitch Ratings causing an unfavorable impact on our cost of or access to capital.
(u) Inability to hire or retain qualified or key senior management personnel.
(v) Terrorist and other criminal activities, hurricanes, earthquakes or other natural disasters, and public health emergencies and health pandemics, which could affect our customers or suppliers, transportation or systems, or our facilities, and for which insurance may not adequately reimburse us.
(w) Difficulties and uncertainties in the discovery, development, regulatory environment and/or marketing of new services or solutions or new uses of existing tests.
(x) Failure to adapt to changes in the healthcare system (including the medical laboratory testing market) and healthcare delivery, including those stemming from the ACA (or its repeal, amendment or replacement), PAMA, trends in utilization of the healthcare system and increased patient financial responsibility for services.
(y) Results and consequences of governmental inquiries.
(z) Difficulty in implementing, or lack of success with, our strategic plan.
(aa) The impact of informatics on our industry and the ability of our Company to adapt to that impact.
(bb) Failure to adequately operationalize appropriate controls around use of our data, including risk of non-compliance with privacy law requirements.
(cc) The COVID-19 pandemic.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
There are no unresolved SEC comments that require disclosure.

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ITEM 2. PROPERTIES
Item 2. Properties
Our executive offices are located at 500 Plaza Drive, Secaucus, New Jersey. We maintain clinical testing laboratories throughout the continental United States; in several instances a joint venture of which we are a partner maintains the laboratory. We also maintain offices, data centers, call centers, distribution centers and patient service centers at locations throughout the United States. In addition, we maintain offices, patient service centers and clinical laboratories in locations outside the United States, including in Puerto Rico and Mexico. Our properties that are not owned are leased on terms and for durations that are reflective of commercial standards in the communities where these properties are located. We believe that, in general, our facilities are suitable and adequate for our current and anticipated future levels of operation and are adequately maintained. We believe that if we were unable to renew a lease on any of our facilities, we could find alternative space at competitive market rates and relocate our operations to such new location without material disruption to our business. Several of our principal facilities are highlighted below.
Location Leased or Owned
3600 Northgate Blvd., Sacramento, California 95834 (laboratory)
Leased
8401 Fallbrook Avenue, West Hills, California 91304 (laboratory)
Leased
33608 Ortega Hwy., San Juan Capistrano, California 92675 (laboratory)
Owned
4151C East Fowler Avenue, Tampa, Florida 33617 (laboratory)
Owned
1777 Montreal Circle, Tucker, Georgia 30084-6802 (laboratory)
Owned
506 E State Parkway, Schaumburg, Illinois 60173 (laboratory)
Owned
1355 Mittle Blvd., Wood Dale, Illinois 60191 (laboratory)
Leased
200 Forest Street, Marlborough, Massachusetts 01752 (laboratories)
Leased
1715 Twin Springs Road, Baltimore, Maryland 21227 (laboratory)
Owned
One Malcolm Avenue, Teterboro, New Jersey 07608 (laboratory)
Leased
800 Business Center Drive, Horsham, Pennsylvania 19044 (laboratory)
Leased
4770 Regent Blvd., Irving, Texas 75063 (laboratory)
Leased
14225 Newbrook Drive, Chantilly, Virginia 22021 (laboratory)
Leased
10101 Renner Blvd., Lenexa, Kansas 66219 (laboratory)
Owned
4380 Federal Drive, Greensboro, North Carolina 27410 (laboratory)
Leased
2501 South State Hwy 121, Lewisville, Texas 75067 (laboratory)
Leased
6700 Euclid Avenue, Cleveland, Ohio 44103 (laboratory)
Leased

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
See Note 18 to the Consolidated Financial Statements (Part II, Item 8 of this Report) for information regarding legal proceedings in which we are involved.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed and traded on the New York Stock Exchange under the symbol “DGX.” As of February 1, 2021, we had approximately 2,500 record holders of our common stock; we believe that the number of beneficial holders of our common stock exceeds the number of record holders.
The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the fourth quarter of 2020.
ISSUER PURCHASES OF EQUITY SECURITIES
Period Total Number of
Shares
Purchased Average Price
Paid per Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
(in thousands)
October 1, 2020 - October 31, 2020
Share Repurchase Program (A) - $ - - $ 1,167,138
Employee Transactions (B) 5,871 $ 114.01 N/A N/A
November 1, 2020 - November 30, 2020
Share Repurchase Program (A) 423,301 $ 124.76 423,301 $ 1,114,327
Employee Transactions (B) 226 $ 122.06 N/A N/A
December 1, 2020 - December 31, 2020
Share Repurchase Program (A) 1,605,678 $ 122.81 1,605,678 $ 917,139
Employee Transactions (B) 1,141 $ 124.44 N/A N/A
Total
Share Repurchase Program (A) 2,028,979 $ 123.21 2,028,979 $ 917,139
Employee Transactions (B) 7,238 $ 115.91 N/A N/A
(A)Since the share repurchase program's inception in May 2003, our Board of Directors has authorized $9 billion of share repurchases of our common stock through December 31, 2020. The share repurchase authority has no set expiration or termination date. On February 4, 2021, the Company announced that our Board of Directors had increased the size of its repurchase program by $1 billion.
(B)Includes: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of stock options (granted under the Company's Amended and Restated Employee Long-Term Incentive Plan) who exercised options; and (2) shares withheld (under the terms of grants under the Amended and Restated Employee Long-Term Incentive Plan) to offset tax withholding obligations that occur upon the delivery of outstanding common shares underlying restricted share units and performance share units.
Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder return on Quest Diagnostics' common stock since December 31, 2015 based on the market price of the Company's common stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies on the Standard & Poor's 500 Stock Index and the S&P 500 Healthcare Equipment & Services Index.
Closing DGX Price Total Shareholder Return Performance Graph Values
Date DGX S&P 500 S&P 500 H.C. DGX S&P 500 S&P 500 H.C.
12/31/2016 $ 91.90 31.89 % 11.96 % (2.69) % $ 131.89 $ 111.96 $ 97.31
12/31/2017 $ 98.49 9.16 % 21.83 % 22.08 % $ 143.97 $ 136.40 $ 118.79
12/30/2018 $ 83.27 (13.84) % (4.38) % 6.47 % $ 124.05 $ 130.42 $ 126.47
12/29/2019 $ 106.79 31.15 % 31.49 % 20.82 % $ 162.68 $ 171.49 $ 152.81
12/31/2020 $ 119.17 14.04 % 18.40 % 13.45 % $ 185.52 $ 203.04 $ 173.36

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
See page 58.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
See page 63.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See Item 15(a)1 and Item 15(a)2.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Report of Management on Internal Control Over Financial Reporting
See page 83.
Changes in Internal Control
During the fourth quarter of 2020, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Our Code of Ethics applies to all employees, executive officers and directors, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller. You can find our Code of Ethics on our corporate governance website, www.QuestDiagnostics.com/investor. We will post any amendments to the Code of Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on our website.
Information regarding the Company's executive officers is contained in Part I, Item 1 of this Report under “Information about our Executive Officers.” Information regarding the directors and executive officers of the Company appearing in our Proxy Statement to be filed by April 30, 2021 (“Proxy Statement”) under the captions “Proposal No. 1 - Election of Directors,” “Director Independence,” “Board Committees” and "Delinquent Section 16(a) Reports" is incorporated by reference herein.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Information appearing in our Proxy Statement under the captions “2020 Director Compensation Table,” “Compensation Discussion and Analysis,” “Information Regarding Executive Compensation” and “Compensation Committee Report” is incorporated by reference herein.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders' Matters
Information regarding security ownership of certain beneficial owners and management appearing in our Proxy Statement under the captions “Stock Ownership Information” and "Equity Compensation Plan Information" is incorporated by reference herein.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions appearing in our Proxy Statement under the captions “Related Person Transactions” and “Director Independence” is incorporated by reference herein.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Information regarding principal accountant fees and services appearing in our Proxy Statement under the caption “Audit" (excluding the information under the subheading “Audit and Finance Committee Report”) is incorporated by reference herein.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)Documents filed as part of this Report.
1.Index to financial statements and supplementary data filed as part of this Report.
Item Page
Financial Statements
Report of Independent Registered Public Accounting Firm
F- 1
Consolidated Balance Sheets
F- 3
Consolidated Statements of Operations
F- 4
Consolidated Statements of Comprehensive Income
F- 5
Consolidated Statements of Cash Flows
F- 6
Consolidated Statements of Stockholders' Equity
F- 7
Notes to Consolidated Financial Statements
F- 8
Supplementary Data: Quarterly Operating Results (unaudited)
F- 49
2.Financial Statement Schedule.
Item Page
Schedule II - Valuation Accounts and Reserves
F- 52
3.Exhibits
Exhibit
Number
Description
3.1 Restated Certificate of Incorporation (filed as an Exhibit to the Company's current report on Form 10-Q for the quarter ended September 30, 2018 (Date of Report: October 24, 2018) and incorporated herein by reference) (Commission File Number 001-12215)
3.2 Amended and Restated By-Laws of the Company (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: May 17, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
4.1 Form of 6.95% Senior Note due 2037 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference) (Commission File Number 001-12215)
4.2 Form of 5.750% Senior Note due 2040 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: November 17, 2009) and incorporated herein by reference) (Commission File Number 001-12215)
4.3 Form of 4.250% Senior Note due 2024 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 12, 2014) and incorporated herein by reference) (Commission File Number 001-12215)
4.4 Form of 3.500% Senior Note due 2025 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 5, 2015) and incorporated herein by reference) (Commission File Number 001-12215)
4.5 Form of 4.700% Senior Note due 2045 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 5, 2015) and incorporated herein by reference) (Commission File Number 001-12215)
4.6 Form of 3.450% Senior Note due 2026 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 23, 2016) and incorporated herein by reference) (Commission File Number 001-12215)
4.7 Form of 4.200% Senior Note due 2029 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: March 7, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
4.8 Form of 2.950% Senior Note due 2030 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: December 9, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
4.9 Form of 2.800% Senior Note due 2031 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 11, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
4.10 Indenture dated as of June 27, 2001, among the Company, the Subsidiary Guarantors, and the Trustee (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.11 First Supplemental Indenture, dated as of June 27, 2001, among the Company, the Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.12 Second Supplemental Indenture, dated as of November 26, 2001, among the Company, the Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: November 26, 2001) and incorporated herein by reference) (Commission File Number 001-12215)
4.13 Third Supplemental Indenture, dated as of April 4, 2002, among the Company, the Additional Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: April 1, 2002) and incorporated herein by reference) (Commission File Number 001-12215)
4.14 Fourth Supplemental Indenture dated as of March 19, 2003, among Unilab Corporation (f/k/a Quest Diagnostics Newco Incorporated), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference) (Commission File Number 001-12215)
4.15 Fifth Supplemental Indenture dated as of April 16, 2004, among Unilab Acquisition Corporation (d/b/a FNA Clinics of America), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference) (Commission File Number 001-12215)
4.16 Sixth Supplemental Indenture dated as of October 31, 2005, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: October 31, 2005) and incorporated herein by reference) (Commission File Number 001-12215)
4.17 Seventh Supplemental Indenture dated as of November 21, 2005, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: November 21, 2005) and incorporated herein by reference) (Commission File Number 001-12215)
4.18 Eighth Supplemental Indenture dated as of July 31, 2006, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: July 31, 2006) and incorporated herein by reference) (Commission File Number 001-12215)
4.19 Ninth Supplemental Indenture dated as of September 30, 2006, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: September 30, 2006) and incorporated herein by reference) (Commission File Number 001-12215)
4.20 Tenth Supplemental Indenture dated as of June 22, 2007, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference) (Commission File Number 001-12215)
4.21 Eleventh Supplemental Indenture dated as of June 22, 2007, among the Company, The Bank of New York, and the Additional Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference) (Commission File Number 001-12215)
4.22 Twelfth Supplemental Indenture dated as of June 25, 2007, among the Company, The Bank of New York, and the Additional Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 19, 2007) and incorporated herein by reference) (Commission File Number 001-12215)
4.23 Thirteenth Supplemental Indenture dated as of November 17, 2009, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: November 17, 2009) and incorporated herein by reference) (Commission File Number 001-12215)
4.24 Fourteenth Supplemental Indenture dated as of March 24, 2011, among the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 21, 2011) and incorporated herein by reference) (Commission File Number 001-12215)
4.25 Fifteenth Supplemental Indenture dated as of November 30, 2011, among the Company, The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
4.26 Sixteenth Supplemental Indenture dated as of March 17, 2014, between the Company, The Bank of New York Mellon Trust Company, N.A., (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 12, 2014) and incorporated herein by reference) (Commission File Number 001-12215)
4.27 Seventeenth Supplemental Indenture dated as of March 10, 2015, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: March 5, 2015) and incorporated herein by reference) (Commission File Number 001-12215)
4.28 Eighteenth Supplemental Indenture dated as of May 26, 2016, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 23, 2016) and incorporated herein by reference) (Commission File Number 001-12215)
4.29 Nineteenth Supplemental Indenture dated as of March 12 2019, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: March 7, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
4.30 Twentieth Supplemental Indenture dated as of December 16, 2019, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: December 16, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
4.31 Twenty-First Supplemental Indenture dated as of May 13, 2020, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 11, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
4.32 Description of Securities (filed as an Exhibit to the Company’s 2019 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.1‡ Amended and Restated Employee Stock Purchase Plan, as amended, effective February 18, 2019 (filed as an Exhibit to the Company's quarterly report on form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference) (Commission File Number 001-12215)
10.2‡ Amended and Restated Quest Diagnostics Incorporated Employee Long-Term Incentive Plan as amended May 14, 2019 (filed as an Exhibit to the Company's 2019 quarterly report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference) (Commission file number 001-12215)
10.3‡ Form of Equity Award Agreement dated as of February 19, 2018 (filed as an Exhibit to the Company’s 2018 quarterly report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference) (Commission file number 001-12215)
10.4‡* Quest Diagnostics Supplemental Deferred Compensation Plan (Post 2004) amended and restated as of January 15, 2020
10.5‡* Quest Diagnostics Supplemental Deferred Compensation Plan (Pre-2005) amended and restated January 15, 2020
10.6‡ Quest Diagnostics Incorporated Senior Management Incentive Plan, as amended and restated February 18, 2019 (filed as an Exhibit to the Company's 2019 quarterly report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference) (Commission File Number 001-12215)
10.7‡ Amended and Restated Quest Diagnostics Incorporated Executive Officer Severance Plan as amended November 19, 2019 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: November 19, 2019) and incorporated herein by reference) (Commission File Number 001-12215)
10.8‡ The Profit Sharing Plan of Quest Diagnostics Incorporated (Amendment and Restatement, effective as of January 1, 2016) (filed as an Exhibit to the Company’s 2015 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.9‡ Amendment No. 1 to The Profit Sharing Plan of Quest Diagnostics Incorporated, effective as of January 1, 2018 (filed as an Exhibit to the Company's 2017 annual report on Form 10-K and incorporated herein by reference) (Commission file number 001-12215)
10.10‡ Amendment No. 2 to The Profit Sharing Plan of Quest Diagnostics Incorporated, as amended December 20, 2018 (filed as an Exhibit to the Company's 2018 annual report on Form 10-K and incorporated herein by reference)(Commission file number 001-12215)
10.11‡ Amendment No. 3 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2020 (filed as an Exhibit to the Company’s 2019 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.12‡ Amendment No. 4 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective March 1, 2020 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference) (Commission File Number 001-12215)
10.13‡ Amendment No. 5 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2020 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference) (Commission File Number 001-12215)
10.14‡ Amendment No. 6 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2021 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference) (Commission File Number 001-12215)
10.15‡* Amendment No. 7 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2021
10.16‡ Quest Diagnostics Incorporated Amended and Restated Deferred Compensation Plan For Directors as amended effective February 18, 2020 (filed as an Exhibit to the Company’s 2019 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.17‡* Amended and Restated Quest Diagnostics Incorporated Long-Term Incentive Plan for Non-Employee Directors, as amended and restated as of November 18, 2020
10.18‡ Form of Non-Employee Director Equity Award Agreement (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.19‡ Form of Non-Employee Director Equity Award Agreement dated May 15, 2015 (filed as an Exhibit to the Company’s 2015 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.20‡ Form of Non-Employee Director Elective Option Award Agreement (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.21‡ Employment Agreement between Stephen H. Rusckowski and Quest Diagnostics Incorporated, dated April 3, 2012 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: April 9, 2012) and incorporated herein by reference) (Commission File Number 001-12215)
10.22‡ Amendment to Employment Agreement between Stephen H. Rusckowski and Quest Diagnostics Incorporated, dated June 11, 2015 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: June 11, 2015) and incorporated herein by reference) (Commission File Number 001-12215)
10.23‡ Aircraft Timesharing Agreement dated as of December 17, 2013 between Quest Diagnostics Incorporated and Stephen H. Rusckowski (filed as an Exhibit to the Company’s 2013 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)
10.24‡ Assignment and Amendment No. 1 to Aircraft Timesharing Agreement dated as of May 29, 2019 between Quest Diagnostics Incorporated and Stephen H. Rusckowski (filed as an Exhibit to the Company’s 2019 quarterly report on Form 10-Q for the quarter ended June 30, 2019 and incorporated herein by reference) (Commission File Number 001-12215)
21.1* Subsidiaries of Quest Diagnostics Incorporated
23.1* Consent of PricewaterhouseCoopers LLP
24.1* Power of Attorney (included on signature page)
31.1* Rule 13a-14(a) Certification of Chief Executive Officer
31.2* Rule 13a-14(a) Certification of Chief Financial Officer
32.1** Section 1350 Certification of Chief Executive Officer
32.2** Section 1350 Certification of Chief Financial Officer
99.1‡ Fourth Amended and Restated Receivables Sales Agreement, dated as of October 28, 2015, between Quest Diagnostics Incorporated and the subsidiaries identified therein, as Sellers, and Quest Diagnostics Receivables Inc., as Buyer (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.2‡ Amendment No. 1 to Fourth Amended and Restated Receivables Sales Agreement, dated October 25, 2019 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.3‡ Sixth Amended and Restated Credit and Security Agreement, dated as of October 27, 2017 among Quest Diagnostics Receivables Inc., Quest Diagnostics Incorporated, as Initial Servicer, MUFG Bank, LTD., as Administrative Agent, the Lenders party thereto, the financial institutions party thereto as agents for the conduit lenders (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.4‡ Amendment No. 1 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 26, 2018 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.5‡ Amendment No. 2 to Sixth Amended and Restated Credit and Security Agreement, dated as of June 14, 2019 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.6‡ Amendment No. 3 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 25, 2019 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
99.7‡* Amendment No. 4 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 22, 2020
99.8‡ Amendment No. 1, dated as of April 30, 2020, relating to the Second Amended and Restated Credit Agreement, dated as of March 22, 2018, among Quest Diagnostics Incorporated, as Borrower, the lenders identified therein, JPMorgan Chase Bank, N.A., as Administrative Agent, and other agents party thereto and which includes, as Exhibit A, the Second Restated Credit Agreement marked to show the amended text (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report: May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document - dgx-20201231.xsd
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document - dgx-20201231_cal.xml
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document - dgx-20201231_def.xml
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document - dgx-20201231_lab.xml
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document - dgx-20201231_pre.xml
104 The cover page from this annual report on Form 10-K, formatted in Inline XBRL.
* Filed herewith.
** Furnished herewith.
‡ Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
(b)Exhibits filed as part of this Report.
The exhibit index in (a) above is incorporated herein by reference.
(c)None.