Laboratory Corporation of America Holdings and its subsidiaries, headquartered
in Burlington, North Carolina, is the second largest independent clinical laboratory
company in the United States.'Through a national network of laboratories, the
Company offers more than 4,400 different clinical laboratory tests which are used
by the medical profession in routine testing, patient diagnosis, and in the monitoring
and treatment of disease.'In addition, the Company has developed specialty and
niche businesses based on certain types of specialized testing capabilities and
client requirements, such as oncology testing, HIV genotyping and phenotyping,
diagnostic genetics and clinical research trials.'The Company has significantly
expanded its routine and specialty testing businesses through the acquisitions
of Dynacare Inc. ("Dynacare") and DIANON Systems, Inc. ("DIANON").
The Company is committed to providing the highest quality laboratory services
to its clients in full compliance with all federal, state and local laws and
regulations.'The Companys Code of Business Conduct and Ethics outlines ethics
and compliance policies adopted by the Company to meet this commitment.'These
policies apply to all employees of the Company and its subsidiaries as well
as the Companys Board of Directors.'The Code of Business Conduct and Ethics,
as well as the Charters for the committees of Audit, Compensation, Ethics and
Quality Assurance, and Nominating and Corporate Governance, and the Companys
Corporate Governance Guidelines, are posted on the Companys website www.labcorp.com.
The Company has established a Compliance Action hotline (1-800-801-1005), which
provides a confidential and anonymous method to report a possible violation
of a LabCorp compliance policy or procedure, or a federal or state law or regulation;
a HIPAA Privacy hotline(1-877-234-4722), which provides a confidential and anonymous
method to report a possible violation of a HIPAA privacy, security or billing
policy or procedure; and an Accounting hotline (1-866-469-6893), which provides
a confidential and anonymous method to report a possible violation of internal
accounting controls or auditing matters.
The Clinical Laboratory Testing Industry
Laboratory tests and procedures are used generally by hospitals, physicians
and other health care providers and commercial clients to assist in the diagnosis,
evaluation, detection, monitoring and treatment of diseases and other medical
conditions through the examination of substances in the blood, tissues and other
specimens. Clinical laboratory testing is generally categorized as either clinical
testing, which is performed on body fluids including blood and urine, or anatomical
pathology testing, which is performed on cytologic samples, tissue and other
samples, including human cells. Clinical and anatomical pathology procedures
are frequently ordered as part of regular physician office visits and hospital
admissions in connection with the diagnosis and treatment of illnesses.'Certain
of these tests and procedures are used principally as tools in the diagnosis
and treatment of a wide variety of medical conditions such as cancer, AIDS,
endocrine disorders, cardiac disorders and genetic disease.'The most frequently
requested tests include blood chemistry analyses, urinalyses, blood cell counts,
Pap tests, HIV tests, microbiology cultures and procedures and alcohol and other
substance abuse tests.
The clinical laboratory industry consists primarily of three types of providers:
hospital-based laboratories, physician-office laboratories and independent clinical
laboratories, such as those owned by the Company.'
Laboratory Testing Operations and Services
The Company has 31 primary testing facilities, and over 1,200 service sites
consisting of branches, patient service centers and STAT laboratories.'A "branch"
is a central facility which collects specimens in a region for shipment to one
of the Companys laboratories for testing. A branch also is used as a base for
sales staff.'Generally, a "patient service center" is a facility maintained
by the Company to serve the physicians in a medical professional building or
other strategic location.'The patient service center collects the specimens
as requested by the physician.
The specimens are sent, principally through the Companys in-house courier system
(and, to a lesser extent, through independent couriers), to one of the Companys
major laboratories for testing. Some of the Companys patient service centers
also function as "STAT labs", which are laboratories that have the
ability to perform certain routine tests quickly and report results to the physician
immediately.'
Company Strategy
The Company believes that it has differentiated itself from its competition
and positioned itself for continued strong growth by building a leadership position
in genomic and other advanced testing technologies.'This leadership position
enables the Company to provide a broad menu of testing services for the infectious
disease
and cancer markets, which it believes represent two of the most significant
areas of future growth in the genomic clinical laboratory industry.'The Companys
primary strategic objective is to expand its leadership position in genomic
and other advanced testing technologies and leverage its national core testing
infrastructure to deliver outstanding and innovative clinical testing services
to patients and physicians nationwide.
Develop and Be First to Market with New Tests
Advances in medicine have begun to fundamentally change diagnostic testing,
and new tests are allowing clinical laboratories to provide unprecedented amounts
of health-related information to physicians and patients.'Significant new tests
introduced over the past several years include a gene-based test for human papilloma
virus, Myriad Genetics predictive test for breast cancer and tests for HIV
phenotyping and cystic fibrosis.'As science continues to advance, the Company
expects new testing technologies to emerge; therefore, it intends to continue
to invest in advanced testing capabilities so that it can remain on the cutting
edge of clinical laboratory testing.'The Company has added, and expects to continue
to add, new testing technologies and capabilities through a combination of internal
development initiatives, technology licensing and partnership transactions and
selected acquisitions.'Through its national sales force, the Company rapidly
introduces new testing technologies to physician customers.
DIANON is a national provider of oncology testing services and significantly
enhances the Companys oncology testing capabilities.
DIANON is recognized by physicians, managed care companies and other customers
as a leading provider of a wide range of anatomic pathology testing services,
with particular strength in uropathology, dermatopathology, GI pathology and
hematopathology.'DIANONs strengths in anatomic pathology complement the Companys
strengths in other areas of cancer testing, particularly cytology.'The Company
expects that DIANONs specialized sales force, scientific expertise, efficient
operating model and proprietary CarePath clinical and pathology reporting system
will allow it to enhance its cancer testing business.'The Company intends to
apply DIANONs best practices to its existing anatomic pathology operations,
which it expects will enable it to realize significant operational efficiencies
Testing Services
Routine Testing
The Company currently offers approximately 4,400 different clinical laboratory
tests or procedures. Several hundred of these are frequently used in general
patient care by physicians to establish or support a diagnosis, to monitor treatment
or medication, or to search for an otherwise undiagnosed condition. The most
frequently requested tests include blood chemistry analyses, urinalyses, blood
cell counts, Pap tests, HIV tests, microbiology cultures and procedures and
alcohol and other substance-abuse tests.'These routine procedures are most often
used by physicians in their outpatient office practices. Physicians may elect
to send such procedures to an independent laboratory or they may choose to establish
an in-house laboratory to perform some of the tests.
The Company performs this core group of routine tests in each of its major
laboratories, which constitutes a majority of the testing performed by the Company.
The Company generally performs and reports most routine procedures within 24
hours, utilizing a variety of sophisticated and computerized laboratory testing
instruments.
Specialty and Niche Testing
While the information provided by many routine tests may be used by nearly
all physicians, regardless of specialty, many other procedures are more specialized
in nature.'One of the primary growth strategies of the Company is the continued
expansion of its specialty and niche businesses, which involve certain types
of unique testing capabilities and/or client requirements.'In general, the specialty
and niche businesses are designed to serve two market segments:
(I) markets which are not typically served by the clinical testing laboratory;
and (II) markets which are served by the clinical testing laboratory and offer
the possibility of adding related services (such as clinical trials or occupational
drug testing) from the same supplier.'The Companys research and development
group continually seeks new and improved technologies for early diagnosis.'For
example, the Companys Center for Molecular Biology and Pathology ("CMBP")
is a leader in molecular diagnostics and polymerase chain reaction ("PCR")
technologies, which are often able to provide earlier and more reliable information
regarding HIV, genetic diseases, cancer and many other viral and bacterial diseases.
In August 2000, the Company acquired Los Angeles-based National Genetics Institute,
Inc. (NGI), a leader in the development of PCR assays for Hepatitis C (HCV).'
In June 2001, the Company acquired Minneapolis-based Viro-Med Laboratories,
Inc., which offers molecular microbial testing using real time PCR platforms.'
Management believes these technologies may represent a significant savings to
the healthcare system increasing the detection of early stage (treatable) diseases.
The following are specialty and niche businesses in which the Company offers
testing and related services:
Infectious Disease.'The Company provides complete viral load testing as well
as HIV genotyping and phenotyping.'In 2000, the Company added HIV GenoSure'
to its portfolio of HIV resistance testing services.'The Companys use of this
leading-edge technology puts it in the forefront of HIV drug resistance testing-one
of the most important issues surrounding the treatment of HIV.'Additionally,
the Company provides comprehensive testing for HCV including both PCR testing
and genotyping at CMBP, NGI and Viro-Med.
Allergy Testing.'The Company offers an extensive range of allergen testing
services as well as computerized analysis and a treatment program that enables
primary care physicians to diagnose and treat many kinds of allergic disorders.
Clinical Research Testing.'The Company regularly performs clinical laboratory
testing for pharmaceutical companies conducting clinical research trials on
new drugs.'This testing often involves periodic testing of patients participating
in the trial over several years.
Diagnostic Genetics.'The Company offers cytogenetic, molecular cytogenetic,
biochemical and molecular genetic tests.
Identity Testing.'The Company provides forensic identity testing used in connection
with criminal proceedings and parentage evaluation services which are used to
assist in the resolution of disputed parentage in child support litigation.'
Parentage testing involves the evaluation of immunological and genetic markers
in specimens obtained from the child, the mother and the alleged father. Management
believes it is now the largest provider of identity testing services in the
United States.
Oncology Testing.'The Company offers an extensive series of testing technologies
that aid in diagnosing and monitoring certain cancers and predicting the outcome
of certain treatments.'The Companys scientists have novel assays for detecting
melanoma and breast cancer in clinical development. In August of 2003, the Company
began offering PreGen-Plus, a non-invasive technology to aid in the early detection
of colorectal cancer in a broader population.'PreGen-Plus utilizes EXACT Sciences
proprietary genomics-based technology.'In January 2003, the Company acquired
DIANON, a national provider of oncology testing services.'DIANON is recognized
by physicians, managed care companies and other customers as a leading provider
of a wide range of anatomic pathology testing services, with particular strength
in uropathology, dermatopathology, GI pathology and hematopathology.
Occupational Testing Services.'The Company provides testing for the detection
of drug abuse for private and government customers, and also provides blood
testing services for the detection of drug abuse and alcohol. These testing
services are designed to produce "forensic" quality test results that
satisfy the rigorous requirements for admissibility as evidence in legal proceedings.
The Company also provides other analytical testing and a variety of management
support services.
The specialized or niche testing services noted above, as well as other complex
procedures, are sent to designated facilities where the Company has concentrated
the people, instruments and related resources for performing such procedures
so that quality and efficiency can be most effectively monitored.'CMBP, NGI
and Viro-Med also specialize in new test development and related education and
training.
Clients
The Company provides testing services to a broad range of health care providers.'
The primary client groups serviced by the Company include:
Independent Physicians and Physician Groups
Physicians requiring testing for their patients are one of the Companys primary
sources of testing services.'Fees for clinical laboratory testing services rendered
for these physicians are billed either to the physician, to the patient or the
patients third party payor such as insurance companies, Medicare or Medicaid.'
Billings are typically on a fee-for-service basis. If the billings are to the
physician, they are based on'customer fee schedule and subject to negotiation.'
Otherwise, the patient or third party payor is billed at the laboratorys patient
fee schedule, subject to third party payor limitations and negotiation by physicians
on behalf of their patients.'Revenues received from Medicare and Medicaid billings
are based on government-set fee
schedules.
Hospitals
The Company provides hospitals with services ranging from routine and specialty
testing to contract management services.
Hospitals generally maintain an on-site laboratory to perform immediately needed
testing on patients receiving care.'However, they also refer less time sensitive
procedures, less frequently needed procedures and highly specialized procedures
to outside facilities, including independent clinical laboratories and larger
medical centers.'The Company typically charges hospitals for any such tests
on a fee-for-service basis which is derived from the Companys customer fee
schedule.'Fees for management services are billed monthly at contractually agreed-upon
rates.
HMOs and Other Managed Care Groups
The Company serves HMOs and other managed care organizations. These medical
service providers typically contract with a limited number of clinical laboratories
and then designate the laboratory or laboratories to be used for tests ordered
by participating physicians.'The majority of the Companys managed care testing
is negotiated on a fee-for-service basis.'Testing is sometimes reimbursed on
a capitated basis for managed care organizations.
Under a capitated payment contract, the Company agrees to perform certain laboratory
tests during a given month for which the managed care organization agrees to
pay a flat monthly fee for each covered member.'The tests covered under agreements
of this type are negotiated for each contract, but usually include routine tests
and exclude highly specialized tests.'Many of the national and large regional
managed care organizations prefer to use large independent clinical labs such
as the Company because they can monitor service and performance on a national
basis.
Other Institutions
The Company serves other institutions, including governmental agencies, large
employers and other independent clinical laboratories that do not have the breadth
of the Companys testing capabilities. The institutions typically pay on a negotiated
fee-for-service basis.
Payors
Most testing services are billed to a party other than the physician or other
authorized person who ordered the test.'In addition, tests performed by a single
physician may be billed to different payors depending on the medical insurance
benefits of a particular patient.'Payors other than the direct patient include,
among others, insurance companies, managed care organizations, Medicare and
Medicaid.'
Competition
The clinical laboratory business is intensely competitive.'There are presently
two national independent clinical laboratories: the Company and Quest Diagnostics
Incorporated ("Quest").