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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2019
or
[] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to  ______
Commission file number - 1-11353

LABORATORY CORP OF AMERICA HOLDINGS
(Exact name of registrant as specified in its charter)

Delaware
 
13-3757370
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

358 South Main Street
 
 
Burlington,
North Carolina
 
27215
(Address of principal executive offices)
 
(Zip Code)

(Registrant's telephone number, including area code) 336-229-1127

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Stock, $0.10 par value
LH
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [  ].  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ] No [X].  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ].

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ].



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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [] No [X].
         
As of June 30, 2019, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $16.1 billion, based on the closing price on such date of the registrant’s common stock on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 97.3 million shares as of February 26, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:
Portions of the Registrant’s Notice of Annual Meeting and Proxy Statement to be filed no later than 120 days following December 31, 2019, are incorporated by reference into Part III.


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Index
 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
Item 16.

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PART I

Item 1.   
BUSINESS
Laboratory Corporation of America® Holdings (LabCorp® or the Company) is a leading global life sciences company that is deeply integrated in guiding patient care. The Company provides comprehensive clinical laboratory and end-to-end drug development services through its LabCorp Diagnostics (LCD) and Covance Drug Development (CDD) segments. LabCorp is positioned at the convergence of research and care delivery to enable more precise and individualized healthcare, bringing together world-class diagnostics and drug development capabilities.
With nearly 65,000 employees worldwide, the Company’s mission is to improve health and improve lives by delivering world-class diagnostics, accelerating the availability of innovative medicines to patients, and using technology to change the way care is delivered. LabCorp, an S&P 500 company, was named to FORTUNE magazine's 2019 List of World's Most Admired Companies. The Company has also been recognized as a Best Place to Work for LGBTQ Equality with a perfect score from Human Rights Campaign's Corporate Equality Index (CEI), the nation's premier benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality.
The Company provides diagnostic, drug development and technology-enabled solutions for more than 160 million patient encounters per year, or more than 3 million per week. The Company also supports clinical trial activity in approximately 100 countries through its industry-leading central laboratory, preclinical, and clinical development businesses, generating more safety and efficacy data to support drug approvals than any other company. CDD collaborated on 85% of the novel drugs approved by the U.S. Food and Drug Administration (FDA) in 2019, including 100% of the novel oncology drugs and 86% of the rare and orphan disease drugs. In addition, CDD has been involved in the development of all of the current top 50 drugs on the market as measured by sales revenue.
The Company celebrated its 50th anniversary in 2019, marking its transformation from a laboratory in a former hospital in 1969 to a leading global life sciences company today. The Company, a Delaware corporation, is headquartered in Burlington, North Carolina, and was incorporated in 1971. Since its incorporation, the Company has continually expanded and diversified its business offerings, technological expertise, geographic reach, revenue base, and financial growth opportunities through a combination of organic investments and disciplined acquisitions.
The Company serves a broad range of customers, including managed care organizations (MCOs), biopharmaceutical, medical device and diagnostics companies, governmental agencies, physicians and other healthcare providers, hospitals and health systems, employers, patients and consumers, contract research organizations (CROs) and independent clinical laboratories. Leveraging the Company's extensive scientific and therapeutic experience, cutting-edge technology, and considerable real-world data and patient intelligence, the Company's customers can understand and respond to evolving patient needs with precision.
The breadth of the Company’s offerings has accelerated revenue and profit growth while generating strong returns for shareholders through share price appreciation. The Company's diversified service offerings also help to balance the impact of changes in the U.S. healthcare payment system, such as the reductions to the Medicare fee schedule under the Protecting Access to Medicare Act (PAMA), and associated reductions to other payer fee schedules, including Medicaid.
Power of Combined Capabilities
Today, the Company participates in drug development from discovery through commercialization; it is the go-to partner for the development, validation and commercialization of companion diagnostics, which are key drivers of precision medicine; it offers a growing menu of high-quality, high-value clinical laboratory tests; and, increasingly, it provides guidance to consumers and care providers about how to integrate drugs and diagnostics into patient care. The Company has proprietary data sets with approximately 35 billion lab test results, including approximately 50 percent of the United States (U.S.) population and a significant database of experienced investigators and trial sites.
The combination of LCD’s and CDD’s core capabilities and scientific expertise enables the Company to create compelling solutions for clients. As an example, the combination has contributed to the Company's position as a market leader in the development and commercialization of companion and complementary diagnostics. LCD and CDD have been involved in the development of drugs and their associated companion diagnostics for more than 20 years, and together have supported more FDA-approved companion diagnostics than any other company. In 2019, the Company's dedicated companion diagnostics team collaborated with 30 clients on more than 150 companion diagnostics projects.
Health systems customers continue to express interest in the Company's ability to both reduce their lab testing costs and bring them meaningful clinical research opportunities through the power of the Company's uniquely combined capabilities. The Company continues to increase CDD site partnerships with U.S.-based health systems and have offered these health systems many meaningful clinical research opportunities. The two-pronged value proposition continues to gain traction with health system partners.

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By combining LCD patient population data with CDD's site location tools and protocol design insights, the Company delivers a truly integrated patient-centric approach to recruitment. Through the LCD portal, patients can consent to release their medical information to CDD to be contacted for opportunities to participate in research including clinical studies, medical device studies and other studies to inform new therapies and better understand patients' needs. As a result of the powerful combination of LCD and CDD insights and data, the Company has the opportunity to win studies and recruit patients and investigators for trials more efficiently in important therapeutic areas like oncology.
Focus on the Future
The Company believes that it can play a larger role in the rapidly evolving healthcare environment by supporting customers’ transition to value-based care, streamlining the drug development process, and creating a leading and differentiated consumer experience.
Value-Based Care
As the healthcare system continues the transition to value-based care, the Company is supporting customers that are more focused on quality of care and outcomes through its differentiated, comprehensive solutions including leading laboratory services, clinical decision support (CDS), robust data integration offerings, drug development solutions, and payer and provider collaborations. The Company is a critical player in enabling targeted, tailored, high-value care in part by helping physicians choose the right test to determine the right medication at the right dosage, and helping to deliver the next generation of lifesaving drugs.
In 2019, LabCorp established new data collaborations with more than 30 value-based care organizations including the announcement of a strategic collaboration with New Jersey Primary Care Association (NJPCA) to advance value-based care at 23 community health centers throughout New Jersey. The project will help NJPCA members achieve value-based care objectives by providing integrated lab and clinical data in a more accessible, comprehensive and secure manner, with a focus on improving outcomes for patients with chronic conditions, such as diabetes and chronic kidney disease. The platform will be available through LabCorp’s Care Intelligence application, which is supported by HealthEC. It will allow for population health analyses, showing trends across communities, and for enhanced monitoring of individual patients to understand when intervention is needed and how a patient is responding to treatment.
Through the efforts of a dedicated team, LabCorp also continues to expand its service solutions to support clients in meeting value-based care goals and objectives, and to work with organizations focused directly on value-based care, such as Accountable Care Organizations, Clinically Integrated Networks, Integrated Delivery Networks, Independent Physicians Associations, national provider groups and Federally Qualified Health Centers. In 2019, LabCorp launched lab-based data reports called Insight Analytics. These reports support provider organizations in the efficient use of laboratory testing (laboratory stewardship), and the enhanced management of patients with chronic conditions such as diabetes, chronic kidney disease, and cardiovascular disease.
Streamlining Drug Development
In today’s healthcare landscape, there is a need to streamline the drug and device development process to bring new therapies to market faster. However, the number of compounds in the pipeline continues to grow and the development path is increasingly complex and costly. These trends have led to growing competition for investigators and patients in clinical studies. In this environment, demand from biopharmaceutical companies for data-driven study design and execution, scalable, innovative tools and processes, and access to relevant analytes, biomarkers and tests continues to rise.
CDD’s unique end-to-end global capabilities provide biopharmaceutical and medical device companies with differentiated solutions to streamline development with a focus on more efficient study design, and faster and more targeted identification of eligible patients and investigators with the power of combined capabilities with LCD. The Company’s investment in CDD’s unmatched combination of capabilities, analytics and scale has strengthened its leadership advantage in areas such as precision medicine, companion diagnostics and decentralized trials. The Company’s integration of new innovations in this space, using sophisticated analytics capabilities and artificial intelligence, are intended to enhance efficiency and quality. In addition, LCD’s strategic relationships with hospitals and health systems create opportunities for those organizations to become research partners to participate in studies and clinical trials with CDD.
The unique combination of the Company’s diagnostic and drug development operating models enables the Company to create differentiated and innovative solutions to streamline the drug and device development process. In 2019, the Company introduced an innovative new patient direct offering, streamlining patient recruitment by using LCD data to quickly and effectively contact appropriate candidates for trials through targeting a set of patients likely to qualify for the study based on diagnosis code, test results, and geographic location. After patients are enrolled, they are then routed to a LCD patient service center (PSC) for testing.
The Company also expects to see increasing adoption of decentralized, hybrid and virtual clinical trials by clinical trial sponsors. These offerings, individually or in combination, may speed patient recruitment and site selection, and improve trial design and data quality, thereby decreasing study duration, costs, and the patient burden of participating in clinical research.

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The Growing Importance of the Consumer in Healthcare
      
As patients have more responsibility for the costs of their care and technological advances drive an expectation of convenient channels for accessing healthcare, the Company continues to invest heavily in new tools, technology and services to facilitate a differentiated consumer experience.
In 2019, the Company announced an expansion to its Pixel by LabCorp™ platform, which was first introduced in 2018 with an initial offering of self-collection kits to empower consumers to order and obtain wellness tests in the comfort and privacy of their homes. The expanded Pixel offering allows consumers to purchase testing online, visit a convenient LCD PSC for specimen collection by a phlebotomist, and receive confidential results through a secure online portal. The tests are performed in LCD’s laboratories, using the same equipment and processes as the testing that clinicians order for their patients during in-office visits. The Company also continues to invest in and evaluate technologies that may enable additional methods for self-collection of specimens, and is exploring the potential use of wearable devices for diagnostics and in clinical trials.
The Company also continued its partnership with Walgreens to open comfortable and convenient PSCs inside Walgreens stores. At the close of 2019, more than 130 LabCorp at Walgreens sites were open or in progress to open in multiple states.
The Company performs the DNA testing for 23andMe. The Company also continues to support telemedicine, and other new care delivery models, that empower and engage healthcare consumers.
Hospital and Health System Partnerships
    
As the healthcare industry continues to consolidate, the new combined organizations can provide economies of scale and the capital to make substantially greater investments in technology, and in some cases they can exercise greater control over how and where patients access care. That industry consolidation generates additional opportunities for the Company’s unique combination of diagnostics and drug development. The Company can offer a wide range of highly efficient and integrated lab testing across multiple types of care settings and can simplify information technology structures and interfaces to standardize lab testing and data. That data can also lead to differentiated integrated solutions, as the Company can identify patients who may be eligible for clinical trials and physicians who may be able to serve as clinical trial investigators.
For more than three decades, the Company has developed and maintained a broad range of collaborations with hospitals and health systems and the Company continues to develop those relationships. In 2019, the Company announced a collaboration with the Mount Sinai Health System, New York City's largest integrated healthcare delivery system, to establish the Mount Sinai Digital and Artificial Intelligence (AI)-Enabled Pathology Center of Excellence. The Company, which has implemented the Philips IntelliSite Pathology Solution in four of its laboratories and plans to deploy it to additional laboratories, will use its experience and expertise to lead the integration of digital pathology into clinical practice across Mount Sinai's hospitals. Other new or extended strategic relationships with health systems and other large provider organizations across the country include South Bend Medical Foundation, MetroPath and New Jersey Primary Care Association. The Company believes that these relationships are foundational in delivering high-quality, outcomes-driven, and cost-effective care to patients.
Company Reporting
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are made available free of charge through the Investor Relations section of the Company’s website at www.labcorp.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). Additionally, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC.
The matters discussed in this “Business” section should be read in conjunction with the Consolidated Financial Statements found in Item 8 of Part II of this report, which include additional financial information about the Company. This report includes forward-looking statements that involve risks or uncertainties. The Company’s results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risk factors described in Item 1A of Part I of this report and elsewhere. For more information about forward-looking statements, see “Forward-Looking Statements” in Item 7.
Business Segments
The Company reports its business in two segments, LCD and CDD. In 2019, LCD and CDD contributed 60% and 40%, respectively, of revenues to the Company, and in 2018 contributed 62% and 38%, respectively. For further financial information about these segments, including information for each of the last three fiscal years regarding revenue, operating income and other important information, see Note 21 Business Segment Information to the Consolidated Financial Statements.


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LCD Segment
LCD is an independent clinical laboratory business. It offers a comprehensive menu of frequently requested and specialty testing through an integrated network of primary and specialty laboratories across the U.S. This network is supported by a sophisticated information technology system, with more than 65,000 electronic interfaces to deliver test results, nimble and efficient logistics, and local labs offering rapid response testing. The Company also provides patient access points, strategically and conveniently located throughout the U.S., including nearly 2,000 PSCs operated by the Company and more than 6,000 in-office phlebotomists who are located in customer offices and facilities. Although testing for healthcare purposes and customers who provide healthcare services represents the most significant portion of the clinical laboratory industry, clinical laboratories also perform testing for other purposes and customers, including employment and occupational testing, DNA testing to determine parentage and to assist in immigration eligibility determinations, environmental testing, wellness testing, toxicology testing, pain management testing, and medical drug monitoring. LCD offers an expansive test menu including a wide range of clinical, anatomic pathology, genetic and genomic tests, and regularly adds new tests and improves the methodology of existing tests to enhance patient care.
With the introduction of Pixel by LabCorp in 2018, the Company also offers consumer-initiated wellness testing.
Through the dedicated effort of approximately 39,000 employees, LCD typically processes tests for more than 3 million patient encounters each week and has laboratory locations throughout the U.S. and other countries, including Canada.
Clinical Laboratory Testing Industry
It is estimated that although laboratory services account for less than 3.0% of total U.S. healthcare spending (and approximately 1.0% of Medicare expenditures), the results of those tests impact a majority of all clinical decisions regarding a patient's care.
Laboratory tests and procedures are used to assist in the diagnosis, monitoring and treatment of diseases and medical conditions through the examination of substances in blood, urine, tissues and other specimen types. The results of such tests can help in the evaluation of health, the detection of conditions or pathogens and the selection of appropriate therapies. Clinical laboratory testing is generally categorized as either clinical pathology testing, which is performed on body fluids including blood, or anatomical pathology testing, in which a pathologist examines histologic (i.e., tissue) or cytologic (i.e., human cells) samples. Clinical and anatomical pathology procedures are frequently ordered as part of regular healthcare office visits and hospital admissions in connection with patient care. Certain of these tests and procedures are used in the diagnosis and management of a wide variety of medical conditions such as cancer, infectious disease, endocrine disorders, cardiac disorders and genetic disease.
The Company believes that in 2019, the U.S. clinical laboratory testing industry generated revenues of approximately $80 billion. The clinical laboratory industry consists primarily of three types of providers: hospital-based laboratories, physician-office laboratories and independent clinical and anatomical pathology laboratories, such as those operated by LCD. The clinical laboratory business is intensely competitive. The Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS) has estimated that in 2019 there were approximately 9,000 hospital-based laboratories, more than 212,000 physician-office laboratories and approximately 6,500 independent clinical laboratories in the U.S. LCD competes with all of those laboratories.
LCD believes that the selection of a laboratory is primarily based on the following factors:
Quality, timeliness and consistency in reporting test results;
Reputation of the laboratory in the medical community or field of specialty;
Contractual relationships with MCOs;
Service capability and convenience;
Number and type of tests performed;
Connectivity solutions offered; and
Pricing of the laboratory’s services.
LCD believes that it competes favorably in all of these areas.
LCD believes that consolidation in the clinical laboratory testing business will continue. In addition, LCD believes that it and other large, independent clinical laboratory testing companies will be able to increase their share of the overall clinical laboratory testing market due to a number of factors, including cost efficiencies afforded by large-scale automated testing, mergers and acquisitions of complementary businesses, changes in payment models to performance and value-based reimbursement to deliver better outcomes at lower cost, and large, integrated service networks. In addition, legal restrictions on physician referrals and physician ownership of laboratories, as well as ongoing regulation of laboratories, are expected to continue to contribute to the ongoing consolidation of the industry.


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LCD Testing Operations and Productivity
LCD has a network of PSCs offering specimen collection services, phlebotomists placed at a customer location, branches, rapid response (STAT) laboratories, primary testing laboratories, and specialty testing laboratories. A number of LCD's regional and specialty laboratories hold ISO 15189 certification, providing customers with the assurance of quality that comes with this rigorous global standard.
Generally, a PSC is a facility maintained by LCD to serve patients. The PSC staff collects specimens for testing as requested by the physician. PSC staff also perform specimen preparation to produce laboratory-ready samples that can be tested upon receipt by the testing laboratory, expediting the delivery of test results. A significant portion of patient specimens are collected by the customer's staff at its office or facility, or in some cases, by an LCD phlebotomist who has been placed in the customer location for the specific purpose of collecting and processing specimens to be tested by LCD.
The Company has developed a comprehensive and nimble supply chain that efficiently moves specimens from the point of collection to the testing laboratory. Extending across the entire life cycle of a patient sample, from sample collection to the delivery of the test result, the LCD supply chain leverages optimized logistics, specimen intake, tracking, and processing procedures that minimize errors and expedite the performance of testing and delivery of results. Specimens collected at PSCs and at customer locations are picked up principally by LCD's in-house courier system and delivered to a branch or directly to one of LCD's laboratories for testing. A branch is a regional facility which serves as a logistics hub, collecting specimens in a specific geographic region for shipment to a primary or specialty laboratory for testing, and is also frequently used as a base for sales and distribution staff. STAT laboratories, which may be co-located with a branch or a PSC, perform critical testing for nearby customers, with results typically delivered within 2-3 hours of receipt of the specimen. Primary testing laboratories perform frequently requested testing on a large scale. Specialty testing laboratories perform one or more types of specialty and esoteric testing.
Each specimen and the associated test order is checked for completeness and given a unique identification number. The unique identification number assigned to each specimen associates the results to the appropriate patient. Test orders, including patient demographics, ordering physician information, specific testing requested, a specimen inventory, and billing information are entered into LCD's systems electronically or manually depending on the method of receipt and the preferences of the ordering physician. Most of LCD's automated testing equipment is connected to its information systems, and test results are entered electronically or manually depending on the test type and equipment involved.
Most specimens are picked up from the customer's location by late afternoon or early evening and delivered to the testing laboratory by late evening on the day of collection or overnight. Test results are, in most cases, electronically delivered to the physician via electronic medical record interfaces, the LabCorp LinkTM platform, smart printers, mobile, or other digital platforms. The Company makes test results available directly to patients through its LabCorp | Patient mobile app and online tool, and by enabling access to test results through Health Records on iPhone.
LCD remains focused on improving quality and productivity while lowering costs throughout all phases of its operations, and LCD's commitment to technology, automation, process optimization, and facility rationalization initiatives support the Company's commitment to continuous improvement and elimination of waste. As part of an ongoing commitment to be an efficient and high value provider of laboratory services, between 2015 and 2017, LCD executed the first phase of a comprehensive business process improvement initiative, referred to as LaunchPad, to reengineer its systems and processes to create a sustainable and more efficient business model, and to improve the experience of all stakeholders. The Company achieved goals for that initial phase of LaunchPad of delivering both short- and long-term savings, and implementing system and process improvements that will continue to yield benefits for the foreseeable future. In late 2018, the Company began phase II of LaunchPad for LCD. The Company is on track for LCD’s LaunchPad phase II initiative to deliver approximately $200.0 million in net savings by the end of 2021, while incurring approximately $40.0 million in one-time implementation costs.
LCD Testing Services
LCD offers a growing menu of nearly 5,000 tests. Several hundred of those tests are used in general patient care by physicians to establish or support a diagnosis, to monitor treatment or to search for an otherwise undiagnosed condition. The most frequently requested tests include blood chemistry analyses, urinalyses, blood cell counts, thyroid tests, Pap tests, hemoglobin A1C, prostate-specific antigen (PSA), tests for sexually-transmitted diseases (e.g. chlamydia, gonorrhea, trichomoniasis and human immunodeficiency virus (HIV)), hepatitis C (HCV), tests, vitamin D, microbiology cultures and procedures, and alcohol and other substance-abuse tests. LCD performs this core group of tests in its major laboratories using sophisticated instruments, with most results reported within 24 hours or less.
In addition, LCD provides a comprehensive range of specialty testing services in the areas of women's health, allergy, diagnostic genetics, cardiovascular disease, infectious disease, endocrinology, oncology, coagulation, pharmacogenetics, toxicology, and medical drug monitoring. LCD also performs a range of other testing services, including parentage and occupational testing and wellness testing for employers.

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LCD’s Specialty Testing Group performs esoteric testing, cancer diagnostics and other complex procedures. The Specialty Testing Group offers advanced methods and access to scientific expertise and consultation in the following disciplines:
Anatomic Pathology/Oncology. LCD offers advanced comprehensive tissue analysis, including immunohistochemistry, (IHC), cancer cytogenetics and fluorescence in situ hybridization (FISH), through its Dianon Pathology and Integrated Oncology specialty testing laboratories. Applications for molecular diagnostics continue to increase in oncology for leukemia analysis and solid tumor assessment. In cancers such as colon and lung cancer, assays that analyze genetic mutations can help guide appropriate therapy choices for a given patient. Through the combined expertise of LCD and CDD, the Company is a recognized leader in the development and introduction of companion and complementary diagnostics, which are becoming increasingly important in the treatment of cancer with new, targeted therapies for which only certain patients may be eligible, or which may provide greater or lesser benefits to certain patients, based on their individual genetic makeup.
Cardiovascular Disease. LCD’s cardiovascular menu includes cholesterol tests, expanded lipid profiles, a metabolic syndrome profile and tests for heart failure, thrombosis and stroke. LCD also offers complete testing for monitoring disease progression and therapy response, including its Cardiovascular Disease Surveillance portfolio to help guide treatment and monitoring decisions.
Coagulation. LCD offers an extensive menu of tests for hemostasis and thrombosis, including bleeding profiles and screening tests, factor analysis, thrombin generation markers, and thrombotic risk evaluation. LCD also performs testing in support of clinical trials largely for therapies to treat hemophilia.
Diagnostic Genetics. LCD offers cytogenetic, molecular cytogenetic, biochemical and molecular genetic tests. The biochemical genetics offerings include a variety of prenatal screening options, including integrated and sequential prenatal assays and non-invasive prenatal testing (NIPT) for more sensitive and earlier assessment of risk for multiple fetal chromosomal aneuploidies, such as Down syndrome. LCD has expanded its cytogenetics offerings through the use of whole genome single-nucleotide polymorphism (SNP) microarray technology, which provides enhanced detection of subtle chromosomal changes associated with the etiology of mental retardation, developmental delay and autism. The molecular genetics services include multiplex analyses of a variety of disorders, gene sequencing applications for both somatic and germ-line alterations and whole exome sequencing. Through Integrated Genetics, LCD provides the most comprehensive genetic test menu in the industry, as well as an experienced team of genetic counselors and medical geneticists to provide patients and their physicians with analysis, assessment and interpretation of genetic test results to help optimize patient decisions and outcomes.
Endocrinology. LCD is a leading provider of advanced hormone/steroid testing, including comprehensive services for the endocrine specialist. LCD has expanded its menu in esoteric endocrine testing and has launched an initiative to develop steroid testing utilizing mass spectrometry technology. Mass spectrometry is used for detection of low levels of small molecule steroids, including testosterone in women, children and hypogonadal men. Additionally, LCD offers endocrine-related tests for genetic conditions including congenital adrenal hyperplasia, short stature, and thyroid cancer, along with providing extensive age- and gender-related reference intervals for those tests.
Infectious Disease. LCD provides complete HIV testing services, including viral load measurements, genotyping and phenotyping, and host genetic factors that are important tools in managing and treating HIV infections. The addition of resistance tests, including PhenoSense®, PhenoSenseGT®, Trofile®, and GenoSure PRIme® complements the existing HIV GenoSure® assay and provides LCD with an industry-leading, comprehensive portfolio of HIV resistance testing services. LCD also provides extensive testing services for HCV infections, including both viral load determinations and strain genotyping and host genetic factors. LCD continues to develop molecular assays for infectious disease.
Women's Health. LCD offers a comprehensive menu of women's health testing. A key feature of this menu is the industry's leading suite of NIPT tests, including MaterniT® GENOME, a fully validated genome-wide NIPT test, reflecting the Company's deep prenatal genetics capabilities. Other LCD testing options for women's health include the NuSwab® portfolio, featuring high-quality, convenient single-swab tests for common infections of the genital tract; an innovative age-based test protocol for cervical cancer and sexually-transmitted disease screening; liquid-based Pap testing with image-guided cervical cytology for improved cervical cancer detection; and out-of-the-vial Pap testing with options for human papillomavirus (HPV). LCD also offers tests that utilize the latest technical innovations for the full range of reproductive care, including maternal serum screening, prenatal diagnostics, ethnicity carrier screening, testing for causes of infertility or miscarriage as well as postnatal testing services.
Pharmacogenetics. LCD provides access to the latest tests in the emerging field of pharmacogenetics. These tests can help physicians understand how a patient metabolizes certain drugs, allowing them to select the most appropriate therapies or adjust dosing.
Parentage and Donor Testing. LCD provides forensic testing used in connection with parentage evaluation services that assist in determining parentage for child support enforcement proceedings and determining genetic relationships for

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immigration purposes. Parentage testing involves the evaluation of immunological and genetic markers in specimens obtained from the child, the mother and the alleged or putative father. LCD also provides testing services in reconstruction cases, which assist in determining parentage without the presence of the parent in question. Additionally, LCD provides human leukocyte antigen testing to match organ and tissue transplant recipients with compatible donors.
Occupational Testing Services. LCD provides testing services for the detection of drug and alcohol use for private and government customers. These testing services are designed to produce forensic quality test results that satisfy the rigorous requirements of regulated and non-regulated workplace drug testing programs. Additionally, LCD provides employee wellness screenings comprised of biometric measurements and diagnostic tests to assist in the detection of health risks including cardiovascular disease and diabetes. LCD also provides medical drug monitoring tests that detect common pain medications and illicit drugs to assist physicians with assessing the full scope of a patient’s drug use.
Medical Drug Monitoring Services. Medical drug monitoring is laboratory testing that monitors patients for the use of prescription pain medications or other controlled substances. These testing services are designed to provide physicians with information relevant to the treatment of patients who are prescribed controlled substances, including opioid pain medications, antianxiety medications, stimulants, and medications prescribed in medication-assisted treatment programs. This testing can help physicians identify patients who are not taking their prescribed doses, which could be an indication that the drugs are being diverted elsewhere, and also to identify patients who may be supplementing their prescribed medication with other, non-prescribed substances. LCD offers broad choice in medical drug monitoring test options. LCD testing may assist in identifying patients who may benefit from greater caution and increased monitoring or interventions when risk factors are identified.
Chronic Disease Programs. LCD uses a programmatic approach to the comprehensive evaluation and treatment of chronic diseases, including chronic kidney disease, cardiovascular disease, metabolic bone disease and diabetes, and it offers CDS reports to both physicians and patients. LCD believes these chronic disease programs represent potential significant savings to the healthcare system by facilitating more effective management of these chronic diseases.
Kidney Stone Prevention. LCD provides services to assist physicians and patients to prevent or minimize the formation of kidney stones, a painful and often debilitating condition that can also require expensive treatment if kidney stones are formed. Through sophisticated algorithms created by the leading specialists in the field, LCD provides patient-specific treatment recommendations and other clinical and patient support for those who have a history of kidney stones or are identified as likely to develop kidney stones.
Development of New Tests
Advances in medicine continue to fundamentally change diagnostic testing. New tests are allowing clinical laboratories to provide unprecedented amounts of health-related information to physicians and patients. New molecular diagnostic tests that have been introduced over the past several years, including a gene-based test for HPV, HIV drug resistance assays, and molecular genetic testing for cystic fibrosis, have now become part of standard clinical practice. LCD continued its industry leadership in gene-based and esoteric testing in 2019. As science continues to advance, LCD expects new testing technologies to emerge and, therefore, intends to continue to invest in advanced testing capabilities so that it can remain on the forefront of diagnostic 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 business acquisitions. Through its sales force, LCD rapidly introduces new testing technologies to customers. These capabilities are important in the retention and growth of business.
In 2019, LCD continued its emphasis on scientific innovation and leadership with the introduction of significant test menu and automation enhancements and by launching more than 100 new tests. LCD is focused on the expansion of existing programs in molecular diagnostics as well as the introduction of new assays and assay platforms through licensing partnerships, acquisitions and internal development. The Company's commitment to the scientific advancement in the development and assessment of new diagnostics and therapeutics is evidenced by producing more than 600 scientific studies, articles, and presentations at scientific and industry meetings, along with regular presentations in academic medical center grand rounds and seminars, in 2019. Among the studies published was the largest to date on the performance of cell-free DNA screening of multifetal pregnancies, finding that LCD's MaterniT21® PLUS test provided reliable results that compare favorably to those for singleton pregnancies. 
Examples of noteworthy new tests and services introduced by LCD in 2019 include companion diagnostics for bladder cancer and breast cancer, and expansion of its therapeutic drug monitoring portfolio to support personalized treatment of patients with certain inflammatory diseases, such as rheumatoid arthritis and Crohn’s disease. LCD introduced a significant expansion to its testing for inherited genetic disorders available through the Inheritest® portfolio of tests. The Company also acquired MNG laboratories in 2019, which greatly enhanced the scope of its specialized test offerings for neurology and brought added capabilities in next-generation sequencing (NGS) testing. LCD extended its exclusive distribution agreement with OmniSeq®, whose NGS-

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based assays provide comprehensive genomic and immune profiling to enable oncologists to select the most appropriate therapies or clinical trials for each patient.
LCD continues its collaborations with university, hospital and academic institutions, such as Cedars-Sinai Medical Center, the Centre for Addiction and Mental Health, Cincinnati Children's Hospital Medical Center, Duke University, Johns Hopkins University, the Medical College of Wisconsin, The Mount Sinai Hospital (New York), Mount Sinai Hospital (Toronto), Roswell Park Comprehensive Cancer Center, the University of Tennessee, and Virginia Commonwealth University, to license and commercialize new diagnostic tests.
LCD Technology-Enabled Solutions
LCD’s technology-enabled solutions include an innovative and proprietary suite of applications to enable patients, healthcare providers, health systems, accountable care organizations (ACOs), and insurers with convenient and secure access to LCD’s data and services. These industry-leading solutions are designed to improve health and improve lives by providing a better laboratory experience for physicians and patients, and ultimately improving the delivery of care.
LCD's centralized and proprietary LabCorp | LinkTM, which focuses on physicians and health systems, is a suite of capabilities that enhance the customer experience and provide an end-to-end lab solution. These assets and functionalities include:
A physician portal optimized for web and mobile devices;
Express electronic ordering for essentially all of LCD's brands and services;
Integrated results viewing and enhanced reports;
Lab analytics that provide one-click trending of patient, test and population data;
CDS tools at the point of testing and resulting;
AccuDraw, which provides graphical, step-by-step guidance to help improve accuracy, workflow and turnaround time in the collection and processing of specimens at the point of collection;
Services-oriented architecture with rules-based engines, content aggregation and seamless integration with practice workflow; and
An installable mobile app available through the Apple and Google app stores that enables healthcare providers to receive alerts that test results are available, view test results, and access test information and contact information for LCD experts from their own mobile device at any time or location.
LCD’s centralized and proprietary LabCorp | Patient is a suite of web and mobile applications that enhances the patient's experience. These assets and functionalities include:
A patient web application optimized for use on desktop computers and mobile devices;
An installable mobile app available through the Apple Store and Google app stores;
Biometric ID login support;
Integrated results viewing and patient education materials;
Online appointment scheduling;
Electronic invoice presentment and payment;
An online patient cost estimator for select genetic tests; and
An option to receive information about clinical trials.
LCD has also fully deployed two patient self-service products across all PSCs nationwide.
LabCorp | PreCheckTM is a mobile-optimized web application that allows patients to easily schedule a PSC visit in advance and to complete all demographic and insurance entry and verification in advance, to streamline the check-in process when they arrive for service. PreCheck also features a mobile check-in to indicate arrival in the waiting room without having to wait in line for an Express tablet.
LabCorp | ExpressTM uses tablets in custom enclosures and proprietary software located in PSC waiting rooms to enable patients with or without an appointment to check into the PSC. If they do not already have an appointment, they can find the next available one at that or a nearby PSC. Express is optimized to capture and confirm demographic and insurance information through barcode scanning and OCR technologies, eliminating typing on the screen. During 2018, payment processing was also added to Express, enabling card payments of overdue or current balances.
These solutions are designed to expedite the intake process and improve patient flow at the PSC. Both also provide options to receive testing and appointment notifications via email or text message. These apps have demonstrably increased patient and staff satisfaction. In addition, the notifications may help increase test compliance, and the patient data collected will help accelerate enrollment in LabCorp | Patient and further increase the growing population of patients who may receive information about clinical study opportunities with CDD.
LCD’s centralized and proprietary LabCorp | PayerTM enables healthcare insurers and ACOs to obtain test results and quality data through a self-service web application. Results and quality data are increasingly important as the healthcare system focuses

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on new payment models and the need to deliver better patient outcomes and reduce cost. Over time, this new portal will be expanded to deliver a wide variety of data and analytic value.
During 2019, LCD delivered nearly 7.0 million enhanced CDS reports for chronic health conditions, including kidney disease, cardiovascular disease, metabolic bone disease and diabetes. LCD’s proprietary CDS reports integrate patient-specific diagnostic information and evidence-based healthcare content to help physicians and patients better manage health. In addition, these decision-support programs promote physician adherence to evidence-based treatment guidelines.
LCD continues to develop new population health analytics programs that provide healthcare business intelligence tools to health systems, physician practices, and ACOs. These tools are intended to assist customers in their compliance and reporting requirements with respect to efficient management of their productivity, quality and patient outcome metrics.
Billing for Laboratory Services
Billing for laboratory services is a complicated process involving many payers such as MCOs, Medicare, Medicaid, physicians and physician groups, hospitals, patients and employer groups, all of which have different billing requirements. In addition, billing arrangements with third-party administrators may further complicate the billing process. Most testing services are billed to a party other than the physician or other authorized person who ordered the test. A growing portion of revenue is derived from patients in the form of deductibles, coinsurance, copayments, and charges for non-covered tests.
LCD utilizes a centralized billing system in the collection of approximately 95.1% of its domestic revenue (90.5% of consolidated LCD revenue). This system generates bills to LCD customers based on payer type. Client payers (which includes physicians, hospitals, health systems, ACOs, employers and other entities) are typically billed monthly, whereas patient, Medicare, Medicaid, and MCO bills are typically generated daily. Accounts receivable are then monitored by billing personnel and follow-up activities are conducted as necessary.
Revenue is adjusted for price concessions related to negotiated discounts and the anticipated impact of adjustments, denials (Medicare, Medicaid and MCOs), and account write-offs (collection risk). Anticipated write-offs are recorded as an adjustment to revenue and at an amount considered necessary to record the segment's revenue at its net realizable value.
The majority of LCD's collection risk is related to accounts receivable from both insured and uninsured patients who are unwilling or unable to pay. In 2019, LCD continued its focus on process, technology innovation and account management initiatives to reduce the negative impact of patient accounts receivable write-offs.
Non-credit-related issues that slow the billing process, such as missing or incorrect billing information on test requisitions also contribute to a reduction in sales. LCD vigorously attempts to obtain any missing information or rectify any incorrect billing information received from the ordering physician. However, LCD typically performs the requested tests and returns the test results regardless of whether billing information is correct or complete. LCD believes that this experience is similar to that of its primary competitors. LCD continues to focus on process initiatives aimed at reducing the impact of these non-credit-related issues. This is accomplished through ongoing identification of root-cause issues, deploying technology-enabled solutions, training provided to internal and external resources involved in the patient data capture process, and an emphasis on the use of electronic test ordering. Over the last several years, LCD has introduced a series of new technology-enabled solutions to improve the billing and collection process, including insurance eligibility verification and address validation at the time of service in all PSCs, an estimate of out-of-pocket costs for patients presenting at a PSC, and a self-serve platform for physicians to resolve claim issues related to diagnosis denials.
For the Company's operations in Ontario, Canada, the Ontario Ministry of Health and Long-Term Care (Ministry) determines who can establish a licensed community medical laboratory and caps the amount that each of these licensed laboratories can bill the government-sponsored healthcare plan. The Ontario government-sponsored healthcare plan covers the cost of clinical laboratory testing performed by the licensed laboratories. The provincial government discounts the annual testing volumes based on certain utilization discounts and establishes an annual maximum it will pay for all community laboratory tests. The agreed-upon reimbursement rates are subject to Ministry review at the end of each year and can be adjusted at the government's discretion based upon the actual volume and mix of testing services performed by the licensed healthcare providers in the province during the year. In 2019, the amount of the Company's capitated revenue derived from the Ontario government-sponsored healthcare plan was CAD 185.8 million.
Effect of U.S. Market Changes on the Clinical Laboratory Business
The delivery of, and reimbursement for, healthcare continues to change in the U.S., impacting all stakeholders, including the clinical laboratory business. Medicare (which principally serves patients who are 65 and older), Medicaid (which principally serves low-income patients) and insurers have increased their efforts to control the cost, utilization and delivery of healthcare services. Measures to regulate healthcare delivery in general and clinical laboratories in particular have resulted in reduced prices, added costs and decreased test utilization for the clinical laboratory industry by imposing new, increasingly complex regulatory and

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administrative requirements. The government also has continued to adjust the Medicare and Medicaid fee schedules at the national and local level, and LCD believes that pressure to reduce government reimbursement will continue.
Fees for most laboratory services reimbursed by Medicare are established in the Clinical Laboratory Fee Schedule (CLFS) and fees for other testing reimbursed by Medicare, primarily related to pathology, are covered by the Physician Fee Schedule (PFS). During 2019, approximately 11.7% of LCD’s revenue was reimbursed under the CLFS (12.9% in 2018), and approximately 0.6% was reimbursed under the PFS (0.7% in 2018). Over the past several years, LCD has experienced governmental reimbursement reductions as a direct result of the Patient Protection and Affordable Care Act (ACA), the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), the Achieving a Better Life Experience Act of 2014 (ABLE Act), and PAMA. Payer policy changes have further impacted the reimbursement for LCD. PAMA, which became law on April 1, 2014, and went into effect on January 1, 2018, resulted in a net reduction in reimbursement revenue of approximately $107.0 million in 2019 from all payers affected by the CLFS (approximately $70.0 million in 2018). Unless further implementation of PAMA is delayed or changed, an additional reduction of approximately $90.0 million is expected for 2020, from all payers affected by the CLFS. These laws include provisions designed to control healthcare expenses reimbursed by government programs through a combination of reductions to fee schedules, incentives to physicians to participate in alternative payment models such as risk-sharing, and new methods to establish and adjust fees.
In 2019, LCD realized a net reduction of approximately $1.9 million in PFS revenue, driven by reductions in reimbursement for flow cytometry procedures ($1.7 million in 2018). In 2020, LCD anticipates it will realize an additional net reduction of approximately $0.7 million in PFS revenue attributable to continued reductions in reimbursement for flow cytometry procedures.
Beginning in 2018, under PAMA, CMS set the CLFS using the weighted median of reported private payer prices paid to certain laboratories that receive a majority of their Medicare revenue from the CLFS and PFS and that bill Medicare under their own National Provider Identifier (NPI). On June 23, 2016, CMS issued a final rule to implement PAMA that required applicable laboratories, including LCD, to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2017. CMS exercised enforcement discretion to permit reporting for an additional 60 days, through May 30, 2017. CMS used that private market data to calculate weighted median prices for each test (based on applicable current procedural technology (CPT) codes) to represent the new CLFS rates beginning in 2018, subject to certain phase-in limits. For 2018-2020, a test price cannot be reduced by more than 10.0% per year; for 2021-2023, a test price cannot be reduced by more than 15.0% per year. The process of data reporting and repricing will be repeated every three years for Clinical Diagnostic Laboratory Tests (CDLTs) beginning in 2021. Under current law, the second data reporting period for CDLTs (based on data collected in 2019) will occur during the first quarter of 2021, and new CLFS rates for CDLTs will be established based on that data beginning in 2022, subject to the previously described phase-in limits for 2022-2023. The third data reporting period for CDLTs (based on data collected in 2023) will occur during the first quarter of 2024, and new CLFS rates for CDLTs will be established based on that data beginning in 2025. CLFS rates for 2024 and subsequent periods will not be subject to phase-in limits. CLFS rates for Advanced Diagnostic Laboratory Tests (ADLTs) will be updated annually.
CMS published its initial proposed CLFS rates under PAMA for 2018-2020 on September 22, 2017. Following a public comment period, CMS made adjustments and published final CLFS rates for 2018-2020 on November 17, 2017, with additional adjustments published on December 1, 2017.
The final rates published by CMS were based on data reported by only 1% of all laboratories paid by Medicare in 2015, and only 1% of the reported data was from hospital laboratories. Consequently, the American Clinical Laboratory Association (ACLA) filed a federal civil action against HHS for declaratory and injunctive relief on December 11, 2017, arguing that CMS violated the PAMA statute by excluding most of the laboratory market from reporting data on which the rates were based, resulting in rates that do not fairly reflect the private market as the clear language of PAMA requires. On September 21, 2018, the U.S. District Court for the District of Columbia dismissed the action for lack of subject matter jurisdiction, and in December 2018, ACLA filed an appeal. On July 30, 2019, the U.S. Court of Appeals for the District of Columbia reversed the decision and remanded the case to the District Court for a determination of whether the CMS final rule violates the Administrative Procedure Act.
On November 1, 2018, CMS released its final rule for the 2019 PFS, which included two revisions to the regulatory definition of “applicable laboratory” under PAMA. First, CMS indicated that hospital outreach labs that bill Medicare Part B using bill type 14X will now qualify as applicable laboratories even if they do not bill Medicare Part B using their own NPI, provided they meet other applicable requirements. Second, CMS removed Medicare Advantage (Medicare Part C) revenue from the denominator of the “majority of Medicare revenues” ratio for identifying applicable laboratories.
A November 2018 report issued by the U.S. Government Accountability Office (GAO) questioned the methodology used by CMS for the new payment rates under PAMA and suggested that implementation of PAMA could lead to significant increases in Medicare expenditures. In January 2019, the U.S. Senate Finance Committee sent a letter to HHS about the GAO report and inquired about the potential cost to taxpayers. ACLA has stated that the GAO’s report reflects inaccurate assumptions and a misunderstanding of standard industry practice for laboratory billing.

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ACLA continues to work with Congress on potential legislative reform of PAMA, which if adopted could reduce the negative impact of PAMA as currently implemented by CMS. The Laboratory Access for Beneficiaries (LAB) Act, which was enacted on December 20, 2019, as Section 105 of Division N of H.R. 1865, the Further Consolidated Appropriations Act for Fiscal Year 2020, delayed the next data reporting period for CDLTs under PAMA by one year, from the first quarter of 2020 to the first quarter of 2021. Implementation of new CLFS rates has been delayed from 2021 to 2022, and each subsequent year of data collection, reporting and rate implementation has been delayed by one year to retain a three-year cycle. In addition, the LAB Act requires the Medicare Payment Advisory Commission (MedPAC) to conduct a study and make recommendations to Congress on ways to improve data collection, reporting, and rate setting under PAMA to achieve, in a less burdensome manner, CLFS rates that accurately and fairly reflect private market rates. The Company supports the ongoing efforts to prevent or lessen the negative impact of the changes to the CLFS pursuant to PAMA, and the full impact of those efforts, and what the long-term effect will be on the CLFS rates is not yet known.
On November 4, 2016, CMS noted in a final rule implementing MACRA that it intended to apply Merit-Based Incentive Payment System (MIPS) requirements to pathologists practicing in independent laboratories, including LCD. Under this requirement, LCD pathologists would have been required to begin reporting certain quality metrics in 2017 for LCD to avoid negative PFS payment adjustments or to qualify for positive PFS payment adjustments beginning in 2019. ACLA met with CMS on March 9, 2017, regarding implementation of this requirement, which was not proposed in the MACRA proposed rule. CMS clarified that it would not apply MIPS requirements to pathologists practicing in independent laboratories.
Further healthcare reform could occur in 2020, including changes to the ACA and Medicare reform, initiatives to address surprise billing and increased price transparency, as well as administrative requirements that may continue to affect coverage, reimbursement, and utilization of laboratory services in ways that are currently unpredictable.
In addition, market-based changes have affected and will continue to affect the clinical laboratory business. Reimbursement from commercial payers for diagnostic testing has shifted and will continue to shift away from traditional, fee-for-service models to alternatives, including value-based, bundled pay-for-performance, and other risk-sharing payment models. The growth of the managed care sector and consolidation of MCOs present various challenges and opportunities to LCD and other clinical laboratories.
The Company is a contracted laboratory partner for all of the major national managed care plans, which reinforces the Company's differentiated value proposition to physicians and patients. In May 2018, the Company signed an extension of its long-term agreement with UnitedHealthcare, however, effective January 1, 2019, the Company ceased to be UnitedHealthcare’s exclusive national laboratory in the U.S. The Company also signed an agreement with Aetna in May 2018, under which it became a preferred national laboratory for Aetna, effective January 1, 2019; the Company had previously been in-network for a limited number of Aetna members. In November 2018, the Company also extended its agreement with Horizon Blue Cross Blue Shield of New Jersey. The Company continues to be the exclusive laboratory for Horizon Medicaid members and is an in-network laboratory for all Horizon members, including HMO members; however, the Company is no longer the exclusive capitated laboratory for Horizon HMO Members. These agreements reflect a trend by MCOs away from laboratory exclusivity, and toward opening their networks to additional laboratory providers in order to give their members increased choice.
The Company also serves many other MCOs. These organizations have different contracting philosophies, which are influenced by the design of their products. Some MCOs contract with a limited number of clinical laboratories and engage in direct negotiation of rates. Other MCOs adopt broader networks with generally uniform fee structures for participating clinical laboratories. In some cases, those fee structures are specific to independent clinical laboratories, while the fees paid to hospital-based and physician-office laboratories may be different, and are typically higher. MCOs may also offer Managed Medicare or Managed Medicaid plans. In addition, some MCOs use capitation rates to fix the cost of laboratory testing services for their enrollees. Under a capitated reimbursement arrangement, the clinical laboratory receives a per-member, per-month payment for an agreed upon menu of laboratory tests provided to MCO members during the month, regardless of the number of tests performed. For the year ended December 31, 2019, capitated contracts with MCOs accounted for approximately $298.0 million, or 4.3%, of LCD's revenues. LCD's ability to attract and retain MCO customers has become even more important as the impact of various healthcare reform initiatives continues, including expanded health insurance exchanges and ACOs.
In addition to reductions in test reimbursement, the Company also anticipates potential declines in test volumes as a result of increased controls over the utilization of laboratory services by Medicare, Medicaid, and other third-party payers, particularly MCOs. MCOs are implementing, directly or through third parties, various types of laboratory benefit management programs, which may include lab networks, utilization management tools (such as prior authorization and/or prior notification), and claims edits, which impact coverage and reimbursement of clinical laboratory tests. Some of these programs address clinical laboratory testing broadly, while others are focused on certain types of testing, including molecular, genetic and toxicology testing. In addition, continued movement by patients into consumer-driven health plans may have an impact on the utilization of laboratory testing.
Despite the overall negative market changes regarding reimbursement discussed above, LCD believes that the volume of clinical laboratory testing is positively influenced by several factors, including the expansion of Medicaid, managed care, and private insurance exchanges. In addition, LCD believes that increased knowledge of the human genome and continued innovation

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in laboratory medicine will continue to foster greater appreciation of the value of gene-based diagnostic assays. Additional factors that may lead to future volume growth include an increase in the number and types of tests that are readily available (due to advances in technology and increased cost efficiencies) for the diagnosis of disease, and the general aging of the U.S. population. As previously discussed, LCD also believes that it and other large, independent clinical laboratory testing companies will be able to increase their share of the overall clinical laboratory testing market due to a number of market factors, primarily related to a continued drive to improve outcomes and reduce costs across the healthcare system. LCD believes that its enhanced and growing esoteric menu of tests, leading position with companion diagnostics, broad geographic footprint, and operating efficiency provide a strong platform for growth.
CDD Segment
CDD provides end-to-end drug development, medical device and companion diagnostic development solutions from early-stage research to clinical development and commercial market access. Its customers comprise biopharmaceutical, medical device and diagnostic companies across the world. With more than 26,000 employees worldwide and a global network of operations, CDD offers deep expertise in early development and clinical trials in each therapeutic area. Through its industry-leading central laboratory business, it supports clinical trial activity in approximately 100 countries, generating more safety and efficacy data to support drug approvals than any other company. CDD collaborated on 85% of the novel drugs approved by the FDA in 2019, including 100% of the novel oncology drugs and 86% of the novel rare and orphan disease drugs. In addition, CDD has been involved in the development of all current top 50 drugs on the market as measured by sales revenue.
Drug Development Industry
 Drug development services companies like CDD are also referred to as CROs and typically derive substantially all of their revenue from research and development (R&D), as well as marketing expenditures of the biopharmaceutical industry. Outsourcing of R&D services by biopharmaceutical companies to CROs has increased in the past, and is expected to continue increasing in the future. Increasing pressures to improve return on investment, to increase R&D productivity, to stay abreast of scientific advances and to comply with stringent government regulations have all contributed to this outsourcing to CROs. A CRO provides biopharmaceutical companies flexibility in aligning resources to demand. In the face of mounting complexity, the investment and amount of time required to develop new products are significant and have been increasing. These trends create opportunities for CDD and other CROs that can help make the development process more efficient.
The drug development industry has many participants ranging from hundreds of small providers to a limited number of large CROs with global capabilities. CDD competes against these small and large CROs, as well as in-house departments of biopharmaceutical, medical device and diagnostic companies, and to a lesser extent, selected academic research centers, universities and teaching hospitals.
CDD believes that customers selecting a CRO often consider the following factors, among others:
Reputation for quality and regulatory compliance;
Efficient, timely performance;
Expertise and experience in operations;
Application of technology and innovation;
Specific therapeutic and scientific expertise;
Data and analytical capabilities;
Post approval and market access services;
Ability to recruit patients;
Scope of service offerings;
Strengths in various geographic markets;
Price;
Quality of facilities;
Quality of relationships, including investigator and patient;
Ability to manage large-scale clinical trials both domestically and internationally, including the recruitment of appropriate and sufficient clinical-trial subjects;
Size and scale; and
Access to talent.
CDD believes that it competes favorably in all of these areas.
Preclinical Services
CDD’s preclinical service offerings include lead optimization, analytical services, safety assessment, and chemistry manufacturing and control (CMC) services for development of new drugs, devices, and crop protection/chemical agents. In 2019,

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CDD expanded its preclinical capabilities and capacity following the acquisition of Envigo's nonclinical contract research services. At the same time, Envigo acquired CDD's research products business. CDD retains access to a full range of high-quality research models and services through its strategic multi-year collaboration with the new Envigo research model and services business. CDD offers solution-based approaches by leveraging highly experienced program development directors and project managers to help guide strategic decisions and manage development in an integrated, streamlined manner across CDD's 16 analytical laboratories and preclinical laboratories in the U.S., the United Kingdom (U.K.), Germany and China.
Lead Optimization. Lead optimization services are non-regulated experiments designed to connect early discovery activities to regulated pre-clinical studies. These services include toxicology, in vivo pharmacology with integrated safety and efficacy capabilities, nonclinical imaging, nonclinical pathology services, pharmacokinetic/toxicokinetic (PK/TK) analysis and immunology services.
Analytical Services. Bioanalytical testing services help determine appropriate dose and frequency of drug administration from late discovery through Phase III clinical testing. CDD’s analytical services include liquid chromatography-mass spectroscopy immunoanalysis, translational biomarkers, discovery bioanalysis, vaccine analysis, and PK/TK analysis. In addition, CDD offers validated, nonproprietary assays for hundreds of compounds, eliminating method development and validation time, and reducing program cost. CDD has dedicated lab facilities across three continents providing in vitro drug metabolism, in vivo radiolabeled absorption, distribution, metabolism and excretion studies; metabolite identification/profiling, nonclinical PK screening, and radiosynthesis services. CDD also provides pharmaceutical chemistry services to determine metabolic profile and bioavailability of drug candidates.
Safety Assessment. Safety assessment services include general, genetic, and immunotoxicology services; nonclinical pathology services; safety pharmacology services; preclinical medical device services; respiratory services; and developmental and reproductive toxicology (DART) studies. CDD’s services employ state-of-the-art technology and an integrated program for both large and small molecules with facilities across three continents. CDD's nonclinical pathology group comprises certified veterinary pathologists who provide critical insights and recommendations to help customers navigate the drug development process.
CMC Manufacturing Solutions. CDD's CMC solutions offer packages supporting FDA Investigational New Drug Application and New Drug Application/Biologics License Application submissions, as well as programs to help CDD's customers meet acceptance criteria for release of drug products for both biologics and small molecules. CDD's CMC solutions provide capabilities and expertise operating within a global quality system framework to deliver robust, cost-effective solutions. Capabilities include safety, identity, strength, quality and purity assessments for biologics.
Early Phase Development Solutions. Early Phase Development Solutions (EPDS) offers access to a focused, multidisciplinary team of experts that crafts integrated solutions to identify and develop lead drug candidates and reduce development challenges. EPDS provides seamless integration of the complete array of CDD nonclinical and early clinical services, with a focus on scientific integrity and human subject safety. EPDS also offers an innovative parallel study approach for shorter proof-of-concept studies. This approach can increase clinical return on investment through the application of medical, scientific and therapeutic expertise, along with patient stratification strategies.
Crop Protection and Chemical Testing. Crop Protection and Chemical Testing services involve a range of testing and consulting services for chemical manufacturers and other firms engaged in the development of modern crop protection technology.
Central Laboratory Services
CDD provides central laboratory and specialty testing services to biopharmaceutical customers through its global network of central laboratories in the U.S., Switzerland, Singapore and China, as well as its strategic agreement for central laboratory services testing in Japan with BML, Inc., a leading Japanese laboratory testing company.
CDD’s capabilities provide customers the flexibility to conduct studies on a global basis. Because CDD uses standardized laboratory equipment, methods, reagents and calibrators for studies, data can be combined with clinical trials in different regions to produce global trial reference ranges. Combinable data eliminates the cumbersome process of harmonizing results generated using different methods in different laboratories on different equipment. CDD also offers external-facing tools such as LabLink+ and Xcellerate® Investigator Portal, which are internet-based customer programs that allow customers to review and query clinical trial lab data on a near real-time basis, that provide an opportunity for enhanced collaboration between the investigator sites, CROs and sponsors.
CDD operates the world’s largest automated clinical trial sample collection kit production line, located in Indianapolis, Indiana. This facility provides kits and supplies to investigator sites around the world, promoting global consistency in sample collection. Extensive automation in the kit production process enables kits to be produced with 5.5 sigma precision, while maintaining the scalability needed to meet increasing global demand. CDD's biorepository facility in Greenfield, Indiana, is dedicated to long-term storage of clinical trial specimens. CDD has additional sample storage facilities in Indianapolis, Indiana; Geneva, Switzerland;

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Singapore; and Shanghai, China, as well as a state-of-the-art distribution center in Mechelen, Belgium. These actively monitored facilities are able to store a wide range of specimens, including plasma, serum, whole blood, DNA and tissue.
CDD has seven ISO 15189-certified laboratories that provide customers with the assurance that comes with this rigorous global standard. In addition to utilizing the broad scientific expertise of the LCD Specialty Testing Group, CDD has implemented a novel model for external lab selection and management that provides rigor and reduces internal resource drain for trial sponsors. The extended laboratory management solutions team focuses on managing all aspects of referral laboratory services, including vendor negotiations, governance, quality management, data services and contract services.
CDD, in conjunction with LCD’s expertise in a wide range of specialty and esoteric testing disciplines, offers a scientifically rich and diverse menu of specialty testing capabilities, spanning the clinical development continuum. These include applied genomics, next-generation sequencing, anatomic and molecular pathology, flow cytometry, chemistry manufacturing controls, clinical immunoassays as well as preclinical and exploratory biomarker development. The combination of CDD and LCD differentiated capabilities and unparalleled experience in companion and complementary diagnostic services support the parallel development of a new medicine and its associated diagnostic assay. The Company's dedicated companion diagnostics team collaborated with 30 clients on more than 150 companion diagnostic projects in 2019. CDD can support the development of in-vitro diagnostic, companion diagnostics and laboratory-developed tests (LDTs). By combining CDD’s strength in central laboratory and early-stage clinical development with LCD’s strength in test commercialization, the Company is well positioned to offer comprehensive, end-to-end support for companion diagnostic development.
Clinical Development and Commercialization Services
CDD offers a comprehensive range of clinical development and commercialization services, including the full service delivery of Phase I through IV clinical studies, along with a wide offering of functional service provider (FSP) solutions. CDD has extensive experience in all major therapeutic and scientific areas, as well as molecule types. It provides the following core services either on an individual or aggregated basis to meet its customers’ needs: protocol optimization; recruitment optimization; coordination of study activities; trial logistics; monitoring of study site performance; clinical data management and biostatistical analysis; pharmacovigilance/safety assessments; and medical writing and regulatory services. CDD also has a dedicated group with extensive experience in the conduct of trials for medical devices and diagnostics, to provide services for the expanding market in medical devices, including mobile health (mHealth) devices. Its solutions are underpinned by an unmatched combination of data sources and sophisticated analytics to drive informed decision-making.
CDD has extensive experience in designing and managing global clinical trials and regional clinical trial activities in North America, Europe, Latin America and the Asia-Pacific region. These trials may be conducted separately or simultaneously as part of a multinational or global development plan. CDD can manage every aspect of a clinical trial, from clinical development plans and protocol design to new drug applications and other supporting services.
CDD is a leader in clinical pharmacology, providing services at its four clinics in the U.S. and Europe, including first-in-human trials, and early clinical trial subject proof-of-concept studies of new biopharmaceuticals.
CDD offers a range of commercialization solutions, including life cycle management and post-approval studies, which are typically conducted after a drug has successfully undergone clinical efficacy and safety testing and the New Drug Application/Biologics License Application has been submitted to and approved by the FDA and/or comparable applications are submitted to and approved by other regulatory bodies. CDD also offers market access solutions, including reimbursement consulting and hotlines, patient assistance programs, health economic and outcomes research services, observational studies, real-world evidence and analytics services, and value communication services. Biopharmaceutical companies purchase these services to serve patients in need of therapy and to help optimize their return on R&D investments.
CDD Technology-Enabled Solutions
CDD’s technology-enabled solutions are designed to improve the drug development process, by providing its biopharmaceutical customers with greater access to key insights and improved trial management. These proprietary software as a service (SaaS) solutions include the award-winning Xcellerate informatics platform, the PharmAcuity suite of software applications, and CDD's endpoint trial management solution. In addition to these solutions, CDD offers its biopharmaceutical customers unique laboratory specimen management solutions from its Global Specimen Solutions (GSS) service platform as well as an efficient, global interactive study randomization technology, to optimize study management and reduce trial-supply costs. Covance MarketPlace securely connects developers with interested companies for licensing opportunities and to accelerate strategic discussions.
Xcellerate integrates and operates with multiple sources of data to deliver unique and timely information throughout the course of customer studies. Xcellerate helps to reduce the cost, time, complexity and risk associated with clinical trials. These solutions leverage a highly innovative data integration and visualization technology that provides timely, secure, integrated and contextualized access to all clinical trial data to enable proactive risk management and informed decision making. Key Xcellerate modules include Trial Design, Clinical Trial Management, Clinical Data Hub, Monitoring, Data Management and Insights:

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Xcellerate Trial Design enables customers to map available patient populations and identify optimal sites and investigators by drawing on the world’s largest proprietary clinical trial knowledge base.
Xcellerate Clinical Trial Management provides the foundational operating systems to enable frictionless execution of clinical trials.
Xcellerate Clinical Data Hub integrates clinical trial data from any source and makes it accessible to study teams in a timely, secure and contextualized manner to support a broad range of monitoring, analytic, and reporting needs.
Xcellerate Data Management enables data managers to enhance data quality and completeness, and accelerates database locking by identifying missing, erroneous or inconsistent data as well as managing queries holistically.
Xcellerate Monitoring enables customers to improve data quality, clinical trial subject safety and protocol compliance in the execution of clinical trials by proactively identifying and mitigating risks at the study site and clinical trial subject level.
Xcellerate Insights enables effective operational oversight by providing interactive, up-to-date views of a broad range of operational metrics and key performance indicators at the study and portfolio levels through a secure collaboration portal, producing insights that enable its users to make decisions about study management and patient impacts.
PharmAcuity is a cloud-based suite of software applications that helps biopharmaceutical companies fine-tune their clinical trial strategy, planning, and design months before a trial begins. The performance data available via PharmAcuity is derived from past trials and public data sources covering more than 130 countries, reflecting the worldwide nature of clinical trials. Key PharmAcuity modules include Metrics and Benchmarking, and Trial Forecasting:
PharmAcuity Metrics and Benchmarking enables clients to assess the performance of historical trials relative to current targets, as well as set accurate and feasible targets for a variety of future trial milestones. Utilizing the rest of the biopharmaceutical industry’s performance data as a benchmark, this module allows the client to evaluate clinical trial performance against the industry, leading to more efficient trial, enrollment, and country planning.
PharmAcuity Trial Forecasting empowers clients to forecast their own clinical trial performance and build different forecasting scenarios across multiple dimensions, all based on proprietary inputs and historical, contextual industry performances.
Covance MarketPlace enables biopharmaceutical companies to showcase therapeutic assets to interested parties for licensing opportunities during the early phases of drug development. With unprecedented access to the Company's exclusive network of drug developers and through its private, secure web portal, companies can share non-confidential information about their assets to attract potential investors or partners. Interested parties can find asset listings via targeted asset alerts and easy-to-use search functions. The platform provides users with direct, secure communication with asset owners, accelerating strategic discussions. It is one more way the Company helps transform drug development programs, delivered by the only global drug development partner with the expertise spanning preclinical, clinical and commercial phases.
GSS provides a suite of innovative software applications for lifecycle specimen management. GSS' GlobalCODE® application provides unified data from a single-interface that allows for tracking of specimens from collection through destruction, as well as cross-protocol analytics and management of samples according to informed consent-allowable usage. The GSS SnapTRACK® application provides for capture of information upon sample collection, and pushes sample-related information into GlobalCODE in near real-time. The GSS LabCODE® platform provides an innovative and client-configurable cloud-based Laboratory Information Management System (LIMS) to biopharmaceutical companies, enabling rapid data integration across numerous in-house laboratories.
CDD’s endpoint trial management solutions offer interactive response technology (IRT) to provide visibility across a client’s clinical development portfolio, enabling optimization of study management and reduced trial supply costs while helping to bring novel therapies to market faster. Key endpoint modules include:
endpoint’s proprietary PULSE® platform comprises pre-validated, configurable study components that enable rapid development and quicker modification to a client’s existing IRT system. PULSE can help to streamline complex trial randomization methods, improve drug supply management, and simplify site, study, and subject management. The fully digital, mobile-ready system allows access to patient data and outcomes in real time.
endpoint’s DRIVE platform provides visibility into supplies management for an entire clinical development portfolio. It provides automated supply functionality to help minimize costs, reduce waste, and manage regulatory compliance across multiple trial sites.
CDD’s other proprietary technology assets include an investigator database and analytic methodologies that are used to design and manage site selection and clinical trial subject enrollment.
Together, CDD's technology-enabled solutions improve the transparency, quality and speed of clinical trials, resulting in reduced costs and increased market potential for biopharmaceutical customers.

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Customers
The Company provides its services to a broad range of customers. The primary customer groups serviced by the Company include:
MCOs. The Company serves many MCOs, each of which operate on a national, regional or local basis. Fees for clinical laboratory testing services rendered for physicians may be billed to a patient’s third-party payer, such as an MCO, with reimbursement typically based on a negotiated, fee-for-service basis, and in some circumstances reimbursement is based on a capitated arrangement.
Biopharmaceutical, Medical Device and Diagnostics Companies. The Company provides development services to hundreds of biopharmaceutical (including pharmaceutical and biotechnology-based organizations), medical device, and diagnostics companies, ranging from the world's largest multi-nationals to emerging to mid-market companies. Contracts with these organizations generally take the form of fee-for-service or fixed-price arrangements.
Physicians and Other Healthcare Providers. Physicians who require clinical laboratory testing for their patients are a primary source of requests for LCD's testing services. Physicians may practice individually, or as part of small or large physician groups, including those operated as part of a broader health system. Fees for clinical laboratory testing services rendered for physicians are billed either to the physician, the physician group, the patient or the patient’s third-party payer, such as an MCO, Medicare or Medicaid. Billings are typically on a fee-for-service basis. If the billings are to the physician, they are based on a customer-specific fee schedule and are subject to negotiation. Otherwise, the patient or third-party payer is billed at the Company's patient list price fee schedule, subject to third-party payer contract terms. Patient sales are recorded at the Company’s patient list price fee schedule, net of any discounts negotiated with physicians on behalf of their patients, or made available at a reduced charge or for free through charity care or an uninsured or underinsured patient program. Revenues received from Medicare and Medicaid billings are based on government-set fee schedules and reimbursement rules.
Hospitals and Health Systems. The Company provides hospitals and health systems with services ranging from core and specialty testing to supply chain and technical support services, and the opportunity to be a research partner for participation in studies and clinical trials with CDD. Individual hospitals generally maintain on-site laboratories to perform immediately and frequently needed testing for patients receiving inpatient and outpatient care. However, they also refer less time-sensitive procedures, less frequently needed procedures and highly specialized procedures to outside facilities, including independent clinical laboratories such as LCD and laboratories operated by larger hospitals or health systems. In some cases, a hospital’s on-site laboratory may be operated or managed by an outside contractor or independent laboratory, including the Company. The Company typically charges hospitals for any such tests on a fee-for-service basis that is derived from the Company’s client list price fee schedule. Fees for laboratory management services are typically billed monthly at contractual rates.
Other Customers. The Company serves a broad range of other customers, including, but not limited to, governmental agencies, employers, patients and consumers, CROs, crop protection and chemical companies, academic institutions and independent clinical laboratories. These customers typically pay on a negotiated fee-for-service basis or based on a set fee schedule.
Capital Allocation
The Company believes it has a strong track record of deploying capital to investments that enhance the Company's business and return capital to shareholders.
From 2015, the Company has invested net cash of approximately $7.2 billion and equity of $1.8 billion in strategic business acquisitions. These acquisitions have significantly expanded the Company’s service offerings, expanded its customer and revenue mix, as well as strengthened and broadened the scope of its geographic presence. The Company continues to evaluate acquisition opportunities that leverage the Company’s core competencies, complement existing scientific and technological capabilities, increase the Company’s presence in key geographic, therapeutic and strategic areas, and meet or exceed the Company’s financial criteria.
From 2015, the Company repurchased approximately $1.5 billion in shares at an average price of approximately $154.66 per share. On February 6, 2019, the board of directors replaced the Company’s existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion of the Company’s shares. The repurchase authorization has no expiration date. During 2019, the Company purchased 2.9 million shares of its common stock at an average price of $154.94 for a total cost of $450.0 million, of which $100.0 million was repurchased prior to the new plan in February 2019. At the end of 2019, the Company had outstanding authorization from the board of directors to purchase an additional $900.0 million of Company common stock.
On June 3, 2019, the Company entered into a new $850.0 million term loan (the 2019 Term Loan). The 2019 Term Loan will mature on June 3, 2021. Proceeds of the 2019 Term Loan were used to repay approximately $250.0 million of the 2017 Term Loan and to fund the acquisition of Envigo's nonclinical research services business.

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On November 25, 2019, the Company issued $1,050.0 million in debt securities, consisting of $400.0 million aggregate principal amount of 2.300% Senior Notes due 2024 and $650.0 million aggregate principal amount of 2.950% Senior Notes due 2029. The net proceeds from the new Senior Notes were used to redeem all of the outstanding $500.0 million principal amount of its 2.625% Senior Notes due February 1, 2020, redeem $187.9 million of the outstanding 4.625% Senior Notes due November 15, 2020 in a tender offer, and the repayment of $348.3 million outstanding under the Company's term loan credit facilities. 
In total, during 2019, the Company redeemed or repaid $687.9 million of its Senior Notes and $1,002.0 million of its term loans. In addition, the Company borrowed and repaid a total of $495.0 million of debt through its revolving credit facility within 2019. The Company will continue to evaluate all opportunities for strategic deployment of capital in light of market conditions.
From 2015, capital expenditures other than acquisitions have been $1.6 billion, representing approximately 3.2% of the Company’s total revenues during the same period. The Company expects capital expenditures in 2020 to be approximately 3.5% to 4.0% of revenues, primarily in connection with projects to support growth in the Company's core businesses, facility expansion and updates, projects related to LaunchPad initiatives within LCD and CDD, and further acquisition integration initiatives.
Seasonality and External Factors
The Company experiences seasonality in both segments of its business. For example, testing volume generally declines during the year-end holiday period and other major holidays and can also decline due to inclement weather or natural disasters. Declines in testing volume reduce revenues, operating margins and cash flows. Operations are also impacted by changes in the global economy, exchange rate fluctuations, political and regulatory changes, the progress of ongoing studies and the startup of new studies, as well as the level of expenditures made by the biopharmaceutical industry in R&D. The results of both segments are impacted by exchange rate fluctuations. Approximately 22.3% of the Company's revenues are billed in currencies other than the U.S. dollar, with the Swiss franc, British pound, Canadian dollar and the euro representing the largest components of its currency exposure. Given the seasonality and changing economic factors impacting the business, comparison of the results for successive quarters may not accurately reflect trends or results for the full year.
Investments in Joint Venture Partnerships
The Company holds investments in joint venture partnerships, with two located in Alberta, Canada, one located in Florence, South Carolina, and one in Buffalo, New York. These businesses are primarily represented by partnership agreements between the Company and other independent diagnostic laboratory investors. Under these agreements, all partners share in the profits and losses of the businesses in proportion to their respective ownership percentages. All partners are actively involved in the major business decisions made by each joint venture. The Company does not consolidate the results of these joint ventures.
The first Canadian partnership is a leader in occupational testing across Canada similar to LCD's U.S. occupational testing services. The second Canadian partnership has a license to conduct diagnostic testing services in the province of Alberta. Substantially all of its revenue is received as reimbursement from the Alberta government's healthcare programs (AHS). In August 2016, AHS and the Canadian partnership reached an agreement to extend the contract for five additional years through March 2022, with the intent to have the services provided pursuant to the contract transferred to AHS at the end of the five-year period. In consideration of AHS acquiring the assets and assuming liabilities in accordance with the parties’ agreement, AHS will pay CAD 50.0 million to the partnership when the transfer is effective, subject to a working capital adjustment. In December 2019, AHS issued a Request for Expression of Interest, that seeks to gauge market interest from private third parties for the provision of community lab services in Alberta. The Canadian partnership submitted a response indicating its interest in providing lab services.
Sales, Marketing and Customer Service
LCD offers its diagnostic services through a sales force focused on serving the specific needs of customers in different market segments. These market segments generally include primary care, women's health, specialty medicine (e.g., infectious disease, endocrinology, gastroenterology and rheumatology), oncology, ACOs, and hospitals and health systems. LCD's general sales force is also supported by a team of clinical specialists that focuses on selling esoteric testing and meeting the unique needs of the specialty medicine markets.
CDD’s global sales activities are conducted by sales personnel in North America, Europe and the Asia-Pacific region. The sales force provides customer coverage across the biopharmaceutical industry for services including lead optimization, preclinical safety assessment, analytical services, clinical trials, central laboratories, biomarkers and companion diagnostics, market access and technology solutions. Customer segments called upon include global and regional biopharmaceutical companies, other CROs and academic institutions. 
The sales force is responsible for both new sales and for customer retention and relationship building and is compensated through a combination of salaries, commissions and bonuses at levels commensurate with each individual’s qualifications, performance and responsibilities.

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Information Systems
The Company is committed to developing and commercializing technology-enabled solutions to support its operations and provide better care. LCD and CDD each operate standard platforms for their core business services, and the Company operates standard platforms for its financial and reporting systems. These standard systems provide consistency within workflows and information as well as a high level of system availability, security, and stability. LCD’s and CDD's primary laboratory systems include standardized support for molecular diagnostics, digital pathology and enhanced specialty laboratory solutions. The Company's centralized information systems are responsible for tremendous operational efficiencies, enabling the Company to achieve consistent, structured, and standardized operating results and superior patient care.
In addition, LCD and CDD each offer proprietary and industry-leading information systems, which are discussed in more detail in the sections dedicated to each of those segments.
Quality
LCD and CDD have comprehensive quality systems and processes that the Company believes are appropriate for their respective businesses. This includes licensing, credentialing, training and competency of professional and technical staff, and internal auditing. In addition to the Company's own quality programs, the Company’s laboratories, facilities and processes are subject to on-site regulatory agency inspections and accreditation evaluations, and surveys, as applicable, by local or national government agencies; external proficiency testing programs; and inspections and audits by customers.
Virtually all facets of the Company’s services are subject to quality programs and procedures, including accuracy and reproducibility of tests; turnaround time; customer service; data integrity; patient satisfaction; and billing. The Company’s quality program includes measures that compare current performance against desired performance goals to monitor critical aspects of service to its customers and patients.
The Company has procedures for monitoring its internal performance, as well as that of its vendors, suppliers and other key stakeholders. In addition, various groups and departments within the Company provide oversight to monitor and control vendor products and performance, and play an essential role in the Company’s approach to quality through improvements in processes and automation. These groups include LCD's National Office of Quality, CDD’s Global Regulatory Compliance and Quality Assurance Unit, the Company's supply chain management department, CDD's clinical trial services global vendor management department, CDD's central laboratory services expanded laboratory management services department, and project management staff supporting LCD and CDD.
     Customer InteractionContinual improvement in the customers’ experience with the Company is essential. Use of technology and workflow improvements are helping to improve the patient experience by: reducing patient wait times at PSCs through advance appointment scheduling and patient check-in through LabCorp | PreCheck; expediting the patient registration process at the PSC through LabCorp | Express; enhancing the specimen collection process through LabCorp Touch and AccuDraw; and allowing patients to access their test results, obtain educational materials, schedule appointments and pay bills directly through LabCorp | Patient. LabCorp | Payer provides healthcare organizations with a centralized location to access test results and quality data. CDD processes permit faster clinical trial study start-up and subject enrollment along with timely delivery of established deliverables to enhance and improve customer interaction. 
     Specimen ManagementThe Company's standardized logistics and specimen tracking technologies allow the timely transportation, monitoring, and storage of specimens. The Company is continually working to maintain and improve its ability to timely collect, transport and track specimens from collection points to all Company or designated external locations.
     Quality Control The Company regularly performs quality control testing. This may include in-process and post-process quality control checks; use of applicable control materials and reference standards, peer reviews, and data review meetings; programmed data edit checks to detect variances and unusual data patterns; dual programming; and mock runs.
     Internal Proficiency TestingLCD has an extensive internal proficiency testing program to assess LCD's analytical and post-analytical phases of laboratory testing, accuracy, precision of its testing protocols, and technologist/technician performance. This program supplements the external proficiency programs required by the laboratory accrediting agencies.
     AccreditationThe Company participates in numerous externally administered quality surveillance programs, including the College of American Pathologists (CAP) program. CAP is an independent non-governmental organization of board-certified pathologists that offers an accreditation program to which laboratories voluntarily subscribe. CAP has been granted deemed status authority by CMS to inspect clinical laboratories to determine adherence to the Clinical Laboratory Improvement Amendments of 1988 (CLIA) requirements. The CAP program involves both on-site inspections of the laboratory and participation in a CAP accepted proficiency testing program for all categories in which the laboratory is accredited. A laboratory's receipt of accreditation by CAP satisfies the CMS requirement for CLIA certification. LCD's major diagnostic laboratories, CDD's major central laboratory facilities, and CDD's Phase I clinical research unit in Dallas, Texas, are accredited by CAP.

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The Company has multiple labs that have received ISO 15189 accreditation. ISO 15189 is an international standard that recognizes the quality and technical competence of medical laboratories. The list below reflects the Company's labs that have achieved this accreditation and the year in which it was achieved:
LCD
Regional Testing Facility, Raritan, New Jersey - January 2017
Regional Testing Facility, Knoxville, Tennessee - November 2016
Regional Testing Facility, San Antonio, Texas - July 2016
Colorado Coagulation, Denver, Colorado - January 2016
Dynacare, Laval, Québec - March 2015
Regional Testing Facility, Dublin, Ohio - March 2015
Endocrine Sciences, Calabasas, California - January 2015
Regional Testing Facility, Dallas, Texas - April 2014
Regional Testing Facility, Denver, Colorado - March 2014
Integrated Genetics, Santa Fe, New Mexico - October 2013
Integrated Genetics, Westborough, Massachusetts - September 2013
Dynacare, Montreal, Québec - June 2013 
Regional Testing Facility, Phoenix, Arizona - April 2013
Regional Testing Facility, Birmingham, Alabama - February 2013
Integrated Oncology, Brentwood, Tennessee - February 2012
ViroMed, Burlington, North Carolina - January 2012
Center for Molecular Biology and Pathology (CMBP), Research Triangle Park, North Carolina - February 2011
Regional Testing Facility, Tampa, Florida - January 2010
Integrated Oncology, Phoenix, Arizona - September 2009
CDD
Covance Central Laboratory Services Inc., Los Angeles, California - August 2018
Covance Central Laboratory Services Inc., Indianapolis, Indiana - August 2015   
   BML Covance Central Laboratory, Tokyo, Japan - March 2015 (Operated for CDD pursuant to a strategic agreement with BML, Inc.)
Covance Pharmaceutical Research and Development (Shanghai) Co. Ltd., Shanghai, China - March 2015
Covance (Asia) Pte. Ltd., Singapore - June 2014
Covance Central Laboratory Services SARL, Geneva, Switzerland - October 2013
RCRI Medical Devices - ISO 13485 - January 2019
In 2019, the Company’s Aviation Department achieved International Standard for Business Aircraft Operations (IS-BAO) Stage 3 certification, which is the final and highest level in a performance-based assessment and audit of the Company’s aviation Safety Management System.
Intellectual Property Rights
The Company relies on a combination of patents, trademarks, copyrights, trade secrets, and nondisclosure and non-competition agreements to establish and protect its proprietary technology. The Company has filed and obtained numerous patents in the U.S. and abroad, and regularly files patent applications, when appropriate, to establish and protect its proprietary technology. Occasionally, the Company also licenses U.S. and non-U.S. patents, patent applications, technology, trade secrets, know-how, copyrights or trademarks owned by others. The Company believes, however, that no single patent, technology, trademark, intellectual property asset or license is material to its business as a whole.
Patents covering the Company's technologies are subject to challenges. Issued patents may be successfully challenged, invalidated, circumvented, or declared unenforceable so that patent rights would not create an effective competitive barrier. In addition, the laws of some countries may not protect proprietary rights to the same extent as do the laws of the U.S.
Parties may file claims asserting that the Company's technologies infringe on their intellectual property. The Company cannot predict whether parties will assert such claims against it, or whether those claims will harm its business. If the Company is forced to defend against such claims, the Company could face costly litigation and diversion of management’s attention and resources. As result of such disputes, the Company may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may require financial or other terms that could have an adverse effect on the Company's business and financial condition.

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Employees
As of December 31, 2019, the Company had nearly 65,000 employees worldwide, approximately 28.0% of whom were employed outside of the U.S. The Company's U.S. based subsidiaries have three collective bargaining agreements, which cover approximately 700 employees. Non-U.S. based subsidiaries have nine collective bargaining agreements, which cover approximately 1,700 employees.

The Company’s success is highly dependent on its ability to attract and retain qualified employees, and the Company believes that it has good working relationships with its employees.
Regulation and Reimbursement
General
Because the Company operates in a number of distinct environments and in a variety of locations worldwide, it is subject to numerous, and sometimes overlapping, regulatory requirements. Both the clinical laboratory industry and the drug development business are subject to significant governmental regulation at the national, state and local levels. As described below, these regulations concern licensure and operation of clinical laboratories, claim submission and reimbursement for laboratory services, healthcare fraud and abuse, drug development services, security and confidentiality of health information, quality, and environmental and occupational safety.
Regulation of Clinical Laboratories
Virtually all clinical laboratories operating in the U.S. must be certified by the federal government or by a federally approved accreditation agency. In most cases, that certification is regulated by CMS through CLIA. CLIA requires that applicable clinical laboratories meet quality assurance, quality control and personnel standards. Laboratories also must undergo proficiency testing and are subject to inspections. Clinical laboratories in locations other than the U.S. are generally subject to comparable regulation in their respective jurisdictions.
Standards for testing under CLIA are based on the complexity of the tests performed by the laboratory, with tests classified as “high complexity,” “moderate complexity,” or “waived.” Laboratories performing high-complexity testing are required to meet more stringent requirements than moderate-complexity laboratories. Laboratories performing only waived tests, which are tests determined by the FDA to have a low potential for error and requiring little oversight, may apply for a certificate of waiver exempting them from most CLIA requirements. All major and many smaller Company facilities hold CLIA certificates to perform high-complexity testing. The Company's remaining smaller testing sites hold CLIA certificates to perform moderate-complexity testing or a certificate of waiver. The sanctions for failure to comply with CLIA requirements include suspension, revocation or limitation of a laboratory's CLIA certificate, which is necessary to conduct business; cancellation or suspension of the laboratory's approval to receive Medicare and/or Medicaid reimbursement; as well as significant fines and/or criminal penalties. The loss or suspension of a CLIA certification, imposition of a fine or other penalties, or future changes in the CLIA law or regulations (or interpretation of the law or regulations) could have a material adverse effect on the Company.
The Company is also subject to state and local laboratory regulation. CLIA provides that a state may adopt laboratory regulations different from or more stringent than those under federal law, and a number of states have implemented their own laboratory regulatory requirements. State laws may require that laboratory personnel meet certain qualifications, specify certain quality controls, or require maintenance of certain records.
The Company believes that it is in compliance in all material respects with all laboratory requirements applicable to its laboratories operating both within the U.S. and in other countries. The Company's laboratories have continuing programs to maintain operations in compliance with all such regulatory requirements, but no assurances can be given that the Company's laboratories will pass all future licensure or certification inspections.
FDA and Other Regulatory Agency Laws and Regulations
Various regulatory agencies, including the FDA in the U.S., have regulatory responsibility over the development, testing, manufacturing, labeling, advertising, marketing, distribution, and surveillance of diagnostic and therapeutic products and services, including certain products and services offered by the Company, and the development of therapeutic products that comprise the majority of CDD’s business. The FDA and other regulatory agencies periodically inspect and review the manufacturing processes and product performance of diagnostic and therapeutic products. The FDA and other regulatory agencies also periodically inspect clinical study sites and CROs that conduct clinical trials, including test facilities that perform tests on samples from human subjects enrolled in such clinical studies of drugs, biologics, and medical devices. These agencies have the authority to take various administrative and legal actions for noncompliance, such as fines, product suspensions, warning or untitled letters, recalls, injunctions and other civil and criminal sanctions. There are similar national and regional regulatory agencies in the jurisdictions outside the U.S. in which the Company operates.

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On October 3, 2014, the FDA issued draft guidance regarding FDA regulation of LDTs. On November 18, 2016, the FDA announced that it would not release final guidance at this time and instead would continue to work with stakeholders, the new administration, and Congress to determine the right approach, and on January 13, 2017, the FDA released a discussion paper outlining a possible risk-based approach for FDA and CMS oversight of LDTs. Later in 2017, the FDA indicated that Congress should enact legislation to address improved oversight of diagnostics including LDTs, rather than the FDA addressing the issue through administrative policy proposals. There are other regulatory and legislative proposals that would increase general FDA oversight of clinical laboratories and LDTs. The outcome and ultimate impact of such proposals on the Company is difficult to predict at this time.
CDD’s laboratory facilities and LCD's clinical laboratory facilities that perform testing in support of clinical trials, must conform to a range of standards and regulations, including good laboratory practice (GLP) and good clinical practice (GCP), good manufacturing practice (GMP), human subject protection and investigational product exemption regulations, and quality system regulation (QSR) requirements, as applicable. The preclinical and clinical studies that the Company conducts are subject to periodic inspections by the FDA as well as other regulatory agencies in the jurisdictions outside the U.S. in which the Company operates, which may include, without limitation, the Medicines and Healthcare products Regulatory Agency (MHRA), in the U.K., the European Medicines Agency, the National Medical Products Administration in China (NMPA), and the Pharmaceuticals and Medical Devices Agency in Japan, to determine compliance with GLP and GCP as well as other applicable standards and regulations. If a regulatory agency determines during an inspection that the Company’s equipment, facilities, laboratories, operations, or processes do not comply with applicable regulations and GLP and/or GCP standards, the regulatory agency may issue a formal notice, which may be followed by a warning letter if observations are not addressed satisfactorily. Noncompliance may result in, among other things, unanticipated compliance expenditures, or the regulatory agency seeking civil, criminal or administrative sanctions and/or remedies against the Company, including suspension of its operations.
Additionally, certain CDD services and activities, such as CMC services and manufacturing of investigational medicinal products for use in certain Phase I studies managed by CDD, must conform to GMP. CDD is subject to periodic inspections by the FDA and the MHRA, as well as other regulatory agencies in the jurisdictions outside the U.S. in which the Company operates, in order to assess, among other things, GMP compliance. If a regulatory agency identifies deficiencies during an inspection, it may issue a formal notice, which may be followed by a warning letter if observations are not addressed satisfactorily. Failure to maintain compliance with GMP regulations and other applicable requirements of various regulatory agencies could result in, among other things, fines, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, injunctions, or criminal prosecution.
The U.S Animal Welfare Act (AWA)
The conduct of animal research at CDD’s facilities in the U.S. must be in compliance with the AWA, which governs the care and use of warm-blooded animals for research in the U.S. other than laboratory rats, mice and chickens, and is enforced through periodic inspections by the U.S. Department of Agriculture (USDA). The AWA establishes facility standards regarding several aspects of animal welfare, including housing, ventilation, lighting, feeding and watering, handling, veterinary care, and recordkeeping. CDD complies with licensing and registration requirement standards set by the USDA and similar agencies in foreign jurisdictions such as the European Union and China for the care and use of regulated species. If the USDA determines that CDD’s equipment, facilities, laboratories or processes do not comply with applicable AWA standards, it may issue an inspection report documenting the deficiencies and setting deadlines for any required corrective actions. The USDA may impose fines, suspend and/or revoke licenses and registrations, or confiscate research animals. Other countries where the Company conducts business have similar laws and regulations with which the Company must also comply. In addition, certain of CDD’s animal-related activities may be subject to regulation by the U.S. Centers for Disease Control and Prevention, the Office of Laboratory Animal Welfare of the National Institutes of Health, the U.S. Fish and Wildlife Service, and similar organizations in other jurisdictions.
Payment for Clinical Laboratory Services
In 2019, LCD derived approximately 14.5% of its revenue directly from the Medicare and Medicaid programs. In addition, LCD's other commercial laboratory testing business that is not directly related to Medicare or Medicaid nevertheless depends significantly on continued participation in these programs and in other government healthcare programs, in part because customers often want a single laboratory to perform all of their testing services. In recent years, both governmental and private sector payers have made efforts to contain or reduce healthcare costs, including reducing reimbursement for clinical laboratory services.
Reimbursement under the Medicare PFS is capped at different rates in each Medicare Administrative Contractor's jurisdiction. Pursuant to PAMA, reimbursement under the CLFS is set at a national rate that is updated every three years for most tests. State Medicaid programs are prohibited from paying more than the Medicare fee schedule limit for clinical laboratory services furnished to Medicaid recipients. Laboratories primarily bill and are reimbursed by Medicare and Medicaid directly for covered tests performed on behalf of Medicare and Medicaid beneficiaries; for beneficiaries that participate in Managed Medicare and Managed Medicaid plans, laboratory bills are submitted to and paid by MCOs that manage those plans. Approximately 11.7% of LCD's revenue is reimbursed directly by Medicare under the CLFS.

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Many pathology services performed by LCD are reimbursed by Medicare under the PFS. The PFS assigns relative value units to each procedure or service, and a conversion factor is applied to calculate the reimbursement. The PFS is also subject to adjustment on an annual basis. Such adjustments can impact both the conversion factor and relative value units. The Sustainable Growth Rate (SGR), the formula previously used to calculate the fee schedule conversion factor, would have resulted in significant decreases in payment for most physician services for each year since 2003. However, Congress intervened repeatedly to prevent these payment reductions, and the conversion factor was increased or frozen for the subsequent year. MACRA permanently replaced the SGR formula and transitioned PFS reimbursement to a value-based payment system. MACRA retroactively avoided a 21.2% reduction in PFS reimbursement that had been scheduled for April 1, 2015, and provided for PFS conversion factor increases of 0.5% from July 1, 2015 to December 31, 2015, and 0.5% in each of years 2016-2019, followed by 0.0% updates for 2020-2025, and updates that vary based on participation in alternative payment models in subsequent years. These changes to the conversion factor may be offset by reductions to the relative value units, as was the case with the 2016 PFS reductions. Approximately 0.6% of LCD's revenue is reimbursed under the PFS.
In addition to changes in reimbursement rates, LCD is also impacted by changes in coverage policies for laboratory tests and annual CPT coding revisions. Medicare, Medicaid and private payer diagnosis code requirements and payment policies negatively impact LCD's ability to be paid for some of the tests it performs. Further, some payers require additional information to process claims, employ third-party utilization management tools, or have implemented prior authorization policies which delay or prohibit payment. CLFS coding and billing changes related to toxicology and other procedures were implemented in 2016 and 2017. The Company experienced delays in the pricing and implementation of the new toxicology codes; however, the Company largely overcame issues related to price and margins through direct negotiation with the associated payers. Limited coding and billing changes related to other procedure types were implemented in 2018 and 2019. While limited changes are expected to be implemented in 2020, the Company expects some delays in pricing and implementation of these new codes.
Future changes in national, state and local laws and regulations (or in the interpretation of current regulations) affecting government payment for clinical laboratory testing could have a material adverse effect on the Company.
Further healthcare reform could occur in 2020, including changes to the ACA and Medicare reform, initiatives to address surprise billing and increased price transparency, as well as administrative requirements that may continue to affect coverage, reimbursement, and utilization of laboratory services in ways that are currently unpredictable.
Privacy, Security and Confidentiality of Health Information and Other Personal Information
In the U.S., the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was designed to address issues related to the security and confidentiality of health information and to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions. These regulations apply to health plans and healthcare providers that conduct standard transactions electronically and healthcare clearinghouses (covered entities). Six such regulations include: (i) the Transactions and Code Sets Rule; (ii) the Privacy Rule; (iii) the Security Rule; (iv) the Standard Unique Employer Identifier Rule, which requires the use of a unique employer identifier in connection with certain electronic transactions; (v) the National Provider Identifier Rule, which requires the use of a unique healthcare provider identifier in connection with certain electronic transactions; and (vi) the Health Plan Identifier Rule, which required the use of a unique health plan identifier in connection with certain electronic transactions.
The Company believes that it is in compliance in all material respects with the current Transactions and Code Sets Rule. The Company implemented Version 5010 of the HIPAA Transaction Standards and believes it has fully adopted the ICD-10-CM code set. While to date the Company has not experienced any sustained disruption in receipts or indications of substantive reductions to reimbursement and revenues related to the implementation of the ICD-10-CM code set, further future application of restrictive clinical or payment policies could negatively impact the Company. The Company believes it is in compliance in all material respects with applicable laws and regulations for electronic funds transfers and remittance advice transactions.
The Privacy Rule regulates the use and disclosure of protected health information (PHI) by covered entities. It also sets forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, such as the right to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI. The Privacy Rule requires covered entities to contractually bind third parties, known as business associates, in the event that they perform an activity or service for or on behalf of the covered entity that involves the creation, receipt, maintenance, or transmission of PHI. The Company believes that it is in compliance in all material respects with the requirements of the HIPAA Privacy Rule.
On December 12, 2018, HHS issued a request for information (RFI) seeking input from the public on how the HIPAA regulations, and the Privacy Rule in particular, could be modified to amend existing, or impose additional, obligations relating to the processing of PHI. The Company participated in this process and no further action has yet been taken by HHS.
The Security Rule establishes requirements for safeguarding patient information that is electronically transmitted or electronically stored. The Company believes that it is in compliance in all material respects with the requirements of the HIPAA

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Security Rule.
The U.S. Health Information Technology for Economic and Clinical Health Act (HITECH), which was enacted in February 2009, with regulations effective on September 23, 2013, strengthened and expanded the HIPAA Privacy and Security Rules and their restrictions on use and disclosure of PHI. HITECH includes, but is not limited to, prohibitions on exchanging PHI for remuneration and additional restrictions on the use of PHI for marketing. HITECH also fundamentally changes a business associate’s obligations by imposing a number of Privacy Rule requirements and a majority of Security Rule provisions directly on business associates that were previously only directly applicable to covered entities. Moreover, HITECH requires covered entities to provide notice to individuals, HHS, and, as applicable, the media when unsecured PHI is breached, as that term is defined by HITECH. Business associates are similarly required to notify covered entities of a breach. The Company believes its policies and procedures are fully compliant with HIPAA as modified by the HITECH requirements.
On February 6, 2014, CMS and HHS published final regulations that amended the HIPAA Privacy Rule to provide individuals (or their personal representatives) with the right to receive copies of their test reports from laboratories subject to HIPAA, or to request that copies of their test reports be transmitted to designated third parties. The Company believes its policies and procedures and privacy notice comply with the Privacy Rule access requirements. 
The Standard Unique Employer Identifier Rule requires that employers have standard national numbers that identify them on standard transactions. The Employer Identification Number, or a Federal Tax Identification Number, issued by the Internal Revenue Service was selected as the identifier for employers and was adopted effective July 30, 2002. The Company believes it is in compliance with these requirements.
The administrative simplification provisions of HIPAA mandate the adoption of standard unique identifiers for healthcare providers. The intent of these provisions is to improve the efficiency and effectiveness of the electronic transmission of health information. The National Provider Identifier Rule requires that all HIPAA-covered healthcare providers, whether they are individuals or organizations, must obtain a NPI to identify themselves in standard HIPAA transactions. NPI replaces the unique provider identification number and other provider numbers previously assigned by payers and other entities for the purpose of identifying healthcare providers in standard electronic transactions. The Company believes that it is in compliance with the HIPAA National Provider Identifier Rule in all material respects.
The Health Plan Identifier (HPID) was a unique identifier designed to furnish a standard way to identify health plans in electronic transactions. CMS published the final rule adopting the HPID for health plans required by HIPAA on September 12, 2012. Effective October 31, 2014, CMS announced a delay, until further notice, in enforcement of regulations pertaining to health plan enumeration and use of the HPID in HIPAA transactions adopted in the HPID final rule. On October 28, 2019, CMS published a final rule rescinding the adopted standard unique HPID and implementation specifications and requirements for its use and other entity identifier (OEID) and implementation specifications for its use, effective December 27, 2019. This delay remains in effect. The Company will continue to monitor future developments related to the HPID and respond accordingly.
Violations of the HIPAA provisions could result in civil and/or criminal penalties, including significant fines and up to 10 years in prison. HITECH also significantly strengthened HIPAA enforcement by increasing the civil penalty amounts that may be imposed, requiring HHS to conduct periodic audits to confirm compliance and authorizing state attorneys general to bring civil actions seeking either injunctions or damages in response to violations of the HIPAA privacy and security regulations that affect the privacy of state residents.
The total cost associated with meeting the ongoing requirements of HIPAA and HITECH is not expected to be material to the Company’s operations or cash flows. However, future regulations and interpretations of HIPAA and HITECH could impose significant costs on the Company.
In addition to the HIPAA regulations described above, numerous other data protection, privacy and similar laws govern the confidentiality, security, use and disclosure of personal information. These laws vary by jurisdiction, but they most commonly regulate or restrict the collection, use and disclosure of medical and financial information and other personal information. In the U.S., some state laws are more restrictive and, therefore, are not preempted by HIPAA. Penalties for violation of these laws may include sanctions against a laboratory's licensure, as well as civil and/or criminal penalties.
On June 28, 2018, the California legislature passed the California Consumer Privacy Act (CCPA), which was effective January 1, 2020. The CCPA created new transparency requirements and granted California residents several new rights with regard their personal information. Failure to comply with the CCPA may result in, among other things, significant civil penalties and injunctive relief, or potential statutory or actual damages. The Company implemented processes to manage compliance with the CCPA. In addition, California residents have the right to bring a private right of action in connection with certain types of incidents. These claims may result in significant liability and potential damages.
On January 2, 2018, the Substance Abuse and Mental Health Services Administration of HHS (SAMHSA) announced the finalization of proposed changes to the Confidentiality of Substance Use Disorder Patient Records regulation, 42 Code of Federal

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Regulations Part 2. This regulation protects the confidentiality of patient records relating to the identity, diagnosis, prognosis, or treatment that are maintained in connection with the performance of any federally assisted program or activity relating to substance use disorder education, prevention, training, treatment, rehabilitation, or research. Under the regulation, patient identifying information may only be released with the individual’s written consent, subject to certain limited exceptions. The latest changes to this regulation seek to align to its requirements more closely with HIPAA, while maintaining more stringent confidentiality of substance use disorder information. The Company will adopt such changes to its policies and procedures as may be necessary for compliance.
The European Union General Data Protection Regulation (GDPR) Regulation (EU) 2016/679, became effective May 25, 2018, replacing Directive 95/46/EC. The GDPR established new requirements applicable to the use and transfer of personal data and imposes penalties for noncompliance of up to the greater of €20 million or 4% of worldwide revenue. The GDPR requires transparency with regard to the means and purposes of processing of personal data; collection of consent to process personal data in certain circumstances; the ability to provide records of processing upon request by a supervisory authority or data controller; implementation of appropriate technical and organizational measures to maintain security of personal data; notification of personal data breaches to supervisory authorities, data controllers and individuals within expedient time frames; and performance of data protection impact assessments for certain processing activities. Personal data may only be transferred outside of the European Union to a country that offers an adequate level of data protection under standards set by the European Union. The GDPR also provides individual data subjects with certain rights, where applicable, including the right of access, the right to rectification, the right to be forgotten, the right to restrict or object to processing and the right to data portability. The Company has established processes and frameworks to manage compliance with the GDPR and other global privacy and data protection requirements, and to manage preparation for future enacted regulations. Compliance could impose significant costs on the Company.
In addition to the GDPR, numerous other countries have laws governing the collection, use, disclosure and transmission (including cross-border transfer) of personal information, including medical information. The legislative and regulatory landscape for privacy and data protection is complex and continually evolving. Data protection regulations have been enacted or updated in countries where the Company does business including in Asia, Latin America, Canada, and Europe. Failure to comply with these regulations may result in, among other things, civil, criminal and contractual liability, fines, regulatory sanctions and damage to the Company’s reputation.
Fraud and Abuse Laws and Regulations
Existing U.S. laws governing federal healthcare programs, including Medicare and Medicaid, as well as similar state laws, impose a variety of broadly described fraud and abuse prohibitions on healthcare providers, including clinical laboratories. These laws are interpreted liberally and enforced aggressively by multiple government agencies, including the U.S. Department of Justice, HHS’ Office of Inspector General (OIG) and various state agencies. Historically, the clinical laboratory industry has been the focus of major governmental enforcement initiatives. The U.S. government's enforcement efforts have been conducted under regulations such as HIPAA, which includes several provisions related to fraud and abuse enforcement, including the establishment of a program to coordinate and fund U.S., state and local law enforcement efforts, and the Deficit Reduction Act of 2005, which includes requirements directed at Medicaid fraud, including increased spending on enforcement and financial incentives for states to adopt false claims act provisions similar to the U.S. False Claims Act. Amendments to the False Claims Act, and other enhancements to the U.S. fraud and abuse laws enacted as part of the ACA, have further increased fraud and abuse enforcement efforts and compliance risks. For example, the ACA established an obligation to report and refund overpayments from Medicare or Medicaid within 60 days of identification (whether or not paid through any fault of the recipient); failure to comply with this requirement can give rise to additional liability under the False Claims Act and Civil Monetary Penalties statute. 
The U.S. Anti-Kickback Statute prohibits knowingly providing anything of value in return for, or to induce the referral of, Medicare, Medicaid or other U.S. healthcare program business. Violations can result in imprisonment, fines, penalties, and/or exclusion from participation in U.S. healthcare programs. The OIG has published “safe harbor” regulations that specify certain arrangements that are protected from prosecution under the Anti-Kickback Statute if all conditions of the relevant safe harbor are met. Failure to fit within a safe harbor does not necessarily constitute a violation of the Anti-Kickback Statute; rather, the arrangement would be subject to scrutiny by regulators and prosecutors and would be evaluated on a case-by-case basis. Many states have their own Medicaid anti-kickback laws, and several states also have anti-kickback laws that apply to all payers (i.e., not just government healthcare programs).
From time to time, the OIG issues alerts and other guidance on certain practices in the healthcare industry that implicate the Anti-Kickback Statute or other fraud and abuse laws. Examples of such guidance documents particularly relevant to the Company and its operations follow.
In October 1994, the OIG issued a Special Fraud Alert on arrangements for the provision of clinical laboratory services. The Fraud Alert set forth a number of practices allegedly engaged in by some clinical laboratories and healthcare providers that raise issues under the U.S. fraud and abuse laws, including the Anti-Kickback Statute. These practices include: (i) providing employees to furnish valuable services for physicians (other than collecting patient specimens for testing) that are typically the responsibility

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of the physicians’ staff; (ii) offering certain laboratory services at prices below fair market value in return for referrals of other tests that are billed to Medicare at higher rates; (iii) providing free testing to physicians’ managed care patients in situations where the referring physicians benefit from such reduced laboratory utilization; (iv) providing free pickup and disposal of biohazardous waste for physicians for items unrelated to a laboratory’s testing services; (v) providing general-use facsimile machines or computers to physicians that are not exclusively used in connection with the laboratory services; and (vi) providing free testing for healthcare providers, their families and their employees (i.e., so-called “professional courtesy” testing). The OIG emphasized in the Special Fraud Alert that when one purpose of such arrangements is to induce referrals of program-reimbursed laboratory testing, both the clinical laboratory and the healthcare provider (e.g., physician) may be liable under the Anti-Kickback Statute, and may be subject to criminal prosecution and exclusion from participation in the Medicare and Medicaid programs. More recently, in June 2014, the OIG issued another Special Fraud Alert addressing compensation paid by laboratories to referring physicians for blood specimen processing and for submitting patient data to registries. This Special Fraud Alert reiterates the OIG's long-standing concerns about payments from laboratories to physicians in excess of the fair market value of the physician's services and payments that reflect the volume or value of referrals of federal U.S. program business.
The OIG has expressed additional concern about the provision of discounts on laboratory services billed to customers in return for the referral of U.S. healthcare program business. In a 1999 Advisory Opinion, the OIG concluded that a laboratory's offer to a physician of significant discounts on non-U.S. healthcare program laboratory tests might violate the Anti-Kickback Statute on the basis that such discounts could be viewed as in exchange for referrals by the physician of business to be billed by the laboratory to Medicare at non-discounted rates.
The OIG issued guidance in 1989 and 2003 regarding joint venture arrangements that may be viewed as suspect under the Anti-Kickback Statute. These documents have relevance to clinical laboratories that are part of (or are considering establishing) joint ventures with potential sources of U.S. healthcare program business. Some of the elements of joint ventures that the OIG identified as “suspect” include: arrangements in which the capital invested by referring providers is disproportionately small and the return on investment is disproportionately large when compared to a typical investment; specific selection of investors who are in a position to make referrals to the venture; and arrangements in which one of the parties to the joint venture expands into a line of business that is dependent on referrals from the other party (sometimes called “shell” joint ventures). In a 2004 advisory opinion, the OIG expressed concern about a proposed joint venture in which a laboratory company would assist physician groups in establishing off-site pathology laboratories where the physicians' financial and business risk in the venture was minimal and the physicians would contract out substantially all laboratory operations, committing very little in the way of financial, capital, or human resources.
In addition to the Anti-Kickback Statute, in October 2018, the U.S. enacted the Eliminating Kickbacks in Recovery Act of 2018 (EKRA), as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act). EKRA is an all-payer anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory. Although it appears that EKRA was intended to reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the language in EKRA is broadly written. As drafted, an EKRA prohibition on incentive compensation to sales employees is inconsistent with the federal anti-kickback statute and regulations, which permit payment of employee incentive compensation, a practice that is common in the industry. Significantly, EKRA permits the U.S.  Department of Justice to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued. The Company is working through its trade association to address the scope of EKRA and is seeking clarification or correction.
Violations of other fraud and abuse laws can also result in exclusion from participation in U.S. healthcare programs, including Medicare and Medicaid. One basis for such exclusion is an individual or entity’s submission of claims to Medicare or Medicaid that are substantially in excess of that individual or entity’s usual charges for like items or services. In a June 18, 2007, withdrawal of proposed rulemaking, the OIG stated that it would continue evaluating billing patterns on a case-by-case basis, noting that it is “concerned about disparities in the amounts charged to Medicare and Medicaid when compared to private payers,” that it continues to believe its exclusion authority for excess charges “provides useful backstop protection for the public from providers that routinely charge Medicare or Medicaid substantially more than their other customers” and that it will use “all tools available … to address instances where Medicare or Medicaid are charged substantially more than other payers.” An enforcement action by the OIG under this statutory exclusion basis or an enforcement action by Medicaid officials of similar state law restrictions could have an adverse effect on the Company.
Enrollment and re-enrollment in U.S. healthcare programs, including Medicare and Medicaid, are subject to certain program integrity requirements intended to protect the programs from fraud, waste, and abuse. In September 2019, the Centers for Medicare and Medicaid Services (CMS) published a final rule implementing program integrity enhancements to provider enrollment requiring Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) providers and suppliers to disclose on an enrollment application or a revalidation application any current or previous direct or indirect affiliation with a provider or supplier that-(1) has uncollected debt; (2) has been or is subject to a payment suspension under a federal health care program; (3) has been or is

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excluded by the Office of Inspector General (OIG) from Medicare, Medicaid, or CHIP; or (4) has had its Medicare, Medicaid, or CHIP billing privileges denied or revoked. This rule permits CMS to deny enrollment based on such an affiliation when CMS determines that the affiliation poses an undue risk of fraud, waste, or abuse. CMS is phasing in this new affiliation disclosure requirement.
Under another U.S. statute, known as the Stark Law or “physician self-referral” prohibition, physicians who have a financial or a compensation relationship with a commercial laboratory may not, unless an exception applies, refer Medicare or Medicaid patients for testing to the laboratory, regardless of the intent of the parties. Similarly, laboratories may not bill Medicare or Medicaid for services furnished pursuant to a prohibited self-referral. There are several Stark Law exceptions that are relevant to arrangements involving clinical laboratories, including: i) fair market value compensation for the provision of items or services; ii) payments by physicians to a laboratory for commercial laboratory services; iii) ancillary services (including laboratory services) provided within the referring physician's own office, if certain criteria are satisfied; iv) physician investment in a company whose stock is traded on a public exchange and has stockholder equity exceeding $75.0 million; and v) certain space and equipment rental arrangements that are set at a fair market value rate and satisfy other requirements. Many states have their own self-referral laws as well, which in some cases apply to all patient referrals, not just government reimbursement programs.
In October 2019, the OIG and CMS published proposed rules to amend the regulations implementing the Anti-Kickback Statute and the Stark Law, respectively. The proposed amendments are primarily intended to alleviate perceived impediments to coordinated care and value-based compensation arrangements, and have varying degrees of applicability to laboratories. These proposed rules, which would establish new safe harbors and exceptions and amend existing safe harbors and exceptions, have not been finalized, and are subject to change before finalization.
There are a variety of other types of U.S. and state fraud and abuse laws, including laws prohibiting submission of false or fraudulent claims. The Company seeks to conduct its business in compliance with all U.S. and state fraud and abuse laws. The Company is unable to predict how these laws will be applied in the future, and no assurances can be given that its arrangements will not be subject to scrutiny under such laws. Sanctions for violations of these laws may include exclusion from participation in Medicare, Medicaid and other U.S. or state healthcare programs, significant criminal and civil fines and penalties, and loss of licensure. Any exclusion from participation in a U.S. healthcare program, or material loss of licensure, arising from any action by any federal or state regulatory or enforcement authority, would likely have a material adverse effect on the Company's business. In addition, any significant criminal or civil penalty resulting from such proceedings could have a material adverse effect on the Company's business.
Environmental, Health and Safety
The Company is subject to licensing and regulation under laws and regulations relating to the protection of the environment, and human health and safety laws and regulations relating to the handling, transportation and disposal of medical specimens and hazardous materials, infectious and hazardous waste and radioactive materials. All Company laboratories are subject to applicable laws and regulations relating to biohazard disposal of all laboratory specimens, and the Company generally utilizes outside vendors for disposal of such specimens. In addition, the U.S. Occupational Safety and Health Administration (OSHA) has established extensive requirements relating to workplace safety for healthcare employers, including clinical laboratories, whose workers may be exposed to blood-borne pathogens such as HIV, HCV and hepatitis B virus (HCB). These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens. Other countries where the Company conducts business have similar laws and regulations concerning the environment and human health and safety with which the Company must also comply.
The Company is committed to reducing its carbon footprint. Energy-saving measures are continuing at Company facilities, including installation of energy-saving LED lighting, engaging in waste-to-energy projects, and helping reduce waste going to landfills, as well as capital investments to systems to improve energy and water usage. CDD has achieved a 9.8% reduction in carbon emissions from 2014 to 2018 from the replacement of older infrastructure and ongoing energy efficiency and conservation efforts. As part of a project with its waste disposal vendor, LCD reduced its rate of waste going to landfills from 2.7% in 2017 to 1.99% in 2018. Funding for these and similar projects continued through 2019 and are continuing in 2020.
The Company seeks to comply with all relevant environmental and human health and safety laws and regulations. Failure to comply could subject the Company to various administrative and/or other enforcement actions.  
Drug Testing
Drug testing for public sector employees is regulated by the SAMHSA, which has established detailed performance and quality standards that laboratories must meet to be approved to perform drug testing on employees of U.S. government contractors and certain other entities. To the extent that the Company’s laboratories perform such testing, each must be certified as meeting

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SAMHSA standards. The Company’s laboratories in Research Triangle Park, North Carolina; Raritan, New Jersey; Houston, Texas; Southaven, Mississippi; Spokane, Washington; and St. Paul, Minnesota are all SAMHSA certified.
Controlled Substances
CDD handles controlled substances as part of the services it provides in preclinical testing and clinical trials. The use of controlled substances in testing for drugs of abuse is regulated by the U.S. Drug Enforcement Administration. The Company seeks to conduct its business in compliance with these regulations as applicable. Violations of these rules may result in criminal and civil fines and penalties.
Compliance Program
The Company maintains a comprehensive, global compliance program that includes ongoing evaluation and monitoring of its compliance with the laws and regulations of the U.S. and the other countries in which it has operations. The objective of the Company’s compliance program is to develop, implement, monitor and update compliance safeguards, as appropriate. Although the Company is subject to a broad range of regulations, its compliance program has a particular focus on regulations related to healthcare fraud and abuse, anti-kickback, physician self-referral, government reimbursement programs, anti-bribery/anti-corruption, anti-human trafficking and trade sanctions, among others. Emphasis is placed on developing and implementing compliance policies and guidelines, personnel training programs and monitoring and auditing activities. The compliance program demonstrates the Company's commitment to conducting business at the highest standards of ethical conduct and integrity.
The Company seeks to conduct its business in compliance with all statutes, regulations, and other requirements applicable to its clinical laboratory operations and drug development business. The clinical laboratory industry and drug development industries are, however, subject to extensive regulation, and many of these statutes and regulations have not been interpreted by the courts. In addition, the applicability or interpretation of statutes and regulations may not be clear in light of emerging changes in clinical testing science, healthcare technology, and healthcare organizations. Applicable statutes and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would materially adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, exclusion from participation in governmental healthcare programs, and the loss of various licenses, certificates, and authorizations necessary to operate, as well as potential liabilities from third-party claims, all of which could have a material adverse effect on the Company’s business.
Information Security
Information security is one of the Company's top priorities. Securing personal and health information is critical to the Company’s business operations and to future growth, as the Company is committed to using technology to improve the delivery of care. A security breach could have a material adverse operational, financial, regulatory, and reputational impact to the Company. The Company employs a secure technology framework that enables continuous operations of laboratory devices, computers, and communications systems. The Company has experienced and expects to continue to confront attempts by cybercriminals who seek access to its systems and data.
The Company uses state-of-the art tools and advanced analytics to proactively identify and protect against potential information system disruptions and breaches; to monitor, test and secure key networks and services; and to facilitate prompt resumption of operations if a system disruption or interruption should occur. The Company has implemented policies and procedures designed to comply with global laws and regulations related to the privacy and security of personal or health information. In addition, the Company follows protocols for evaluating the cybersecurity status of any vendor or third-party that will have access to the Company's data or information technology systems. The Company also carries cybercrime and business interruption insurance.
Over the past several years, the Company has significantly increased its investment in cybersecurity technology and training to help protect its information technology systems and operations in response to the ever-evolving cyberthreat landscape. Additional resources have been and will be dedicated to expand the Company’s ability to investigate and remediate any cybersecurity vulnerabilities, and to manage any impact of a cybersecurity event on its business and operations. 
In July 2018, the Company experienced a ransomware incident which affected certain LCD information technology systems. The incident temporarily affected test processing and customer access to test results, and also affected certain other information technology systems involved in conducting Company-wide operations. The investigation determined that the ransomware did not and could not transfer patient or client data outside of Company systems and that there was no theft or misuse of patient or client data.
The Company is also exposed to risks related to information security arising from the information technology systems and operations of third parites, including those of the Company's vendors and partners. For example, on May 14, 2019, Retrieval-Masters Credit Bureau, Inc. d/b/a/ American Medical Collections Agency (AMCA), an external collection agency, notified the Company about a security incident AMCA experienced that may have involved certain personal information about some of the

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Company's patients (the AMCA Incident). The Company referred patient balances to AMCA only when direct collection efforts were unsuccessful. The Company's systems were not impacted by the AMCA Incident. Upon learning of the AMCA Incident, the Company promptly stopped sending new collection requests to AMCA and stopped AMCA from continuing to work on any pending collection requests on behalf of the Company. AMCA informed the Company that it appeared that an unauthorized user had access to AMCA's system between August 1, 2018 and March 30, 2019, and that AMCA could not rule out the possibility that personal information on AMCA's system was at risk during that time period. Information on AMCA's affected system from the Company may have included name, address, and balance information for the patient and person responsible for payment, along with the patient's phone number, date of birth, referring physician, and date of service. The Company was later informed by AMCA that health insurance information may have been included for some individuals, and because some insurance carriers utilize the Social Security Number as a subscriber identification number, the Social Security Number for some individuals may also have been affected. No ordered tests, laboratory test results, or diagnostic information from the Company were in the AMCA affected system. The Company notified individuals for whom it had a valid mailing address. For the individuals whose Social Security Number was affected, the notice included an offer to enroll in credit monitoring and identity protection services that will be provided free of charge for 24 months. The Company has incurred, and expects to continue to incur, costs related to the AMCA Incident. In addition, the Company is involved in pending and threatened litigation related to the AMCA Incident, as well as various government and regulatory inquiries and processes. For additional information about the AMCA Incident, see Note 16 Commitments and Contingencies to the Consolidated Financial Statements.
The Company continues to invest in its technology and training to help protect its information technology systems and operations from cyberattacks.
Item 1A.     Risk Factors
Investors should carefully consider all of the information set forth in this report, including the following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only ones that the Company faces. Additional risks not presently known to the Company, or that it presently deems immaterial, may also negatively impact the Company. The Company’s 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. The Company’s results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere. See “Forward-Looking Statements” in Item 7.
 Changes in payer regulations or policies (or in the interpretation of current regulations or policies), insurance regulations or approvals, or changes in other laws, regulations or policies in the United States (U.S.), may adversely affect U.S. governmental and third-party coverage or reimbursement for clinical laboratory testing and may have a material adverse effect upon the Company.
 U.S. and state government payers, such as Medicare and Medicaid, as well as insurers, including managed care organizations (MCOs), have increased their efforts to control the cost, utilization and delivery of healthcare services. From time to time, Congress has considered and implemented changes in Medicare fee schedules in conjunction with budgetary legislation. The first phase of reductions pursuant to the Protecting Access to Medicare Act (PAMA) came into effect on January 1, 2018, and will continue annually subject to certain phase-in limits through 2025, and without limitations for subsequent periods. Further reductions due to changes in policy regarding coverage of tests or other requirements for payment, such as prior authorization, diagnosis code and other claims edits, or a physician or qualified practitioner’s signature on test requisitions, may be implemented from time to time. Reimbursement for pathology services performed by LabCorp Diagnostics (LCD) is also subject to statutory and regulatory reduction. Reductions in the reimbursement rates and changes in payment policies of other third-party payers may occur as well. Such changes in the past have resulted in reduced payments as well as added costs and have decreased test utilization for the commercial laboratory industry by adding more complex new regulatory and administrative requirements. Further changes in third-party payer regulations, policies, or laboratory benefit or utilization management programs may have a material adverse effect on LCD's business. Actions by federal and state agencies regulating insurance, including healthcare exchanges, or changes in other laws, regulations, or policies may also have a material adverse effect upon LCD's business.
 The Company could face significant monetary damages and penalties and/or exclusion from government programs if it violates anti-fraud and abuse laws. 
The Company is subject to extensive government regulation at the federal, state, and local levels in the U.S. and other countries where it operates. The Company’s failure to meet governmental requirements under these regulations, including those relating to billing practices and financial relationships with physicians, hospitals, and health systems could lead to civil and criminal penalties, exclusion from participation in Medicare and Medicaid and possible prohibitions or restrictions on the use of its laboratories. While the Company believes that it is in material compliance with all statutory and regulatory requirements, there is a risk that government authorities might take a contrary position. This risk includes, but is not limited to, the potential that government enforcement

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authorities may take a contrary position with respect to the Eliminating Kickbacks in Recovery Act (EKRA), given its recent passage and lack of associated regulations to clarify or add exceptions. Such occurrences, regardless of their outcome, could damage the Company’s reputation and adversely affect important business relationships. 
The Company’s business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of the Clinical Laboratory Improvement Act of 1967, and the Clinical Laboratory Improvement Amendments of 1988 (CLIA), or those of Medicare, Medicaid or other national, state or local agencies in the U.S. and other countries where the Company operates laboratories. 
The commercial laboratory testing industry is subject to extensive U.S. regulation, and many of these statutes and regulations have not been interpreted by the courts. CLIA extends federal oversight to virtually all clinical laboratories operating in the U.S. by requiring that they be certified by the federal government or by a federally approved accreditation agency. The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties. In addition, the Company is subject to regulation under state law. State laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. The Company also operates laboratories outside of the U.S. and is subject to laws governing its laboratory operations in the other countries where it operates.
Applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect the Company's business. Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various licenses, certificates and authorizations, which could have a material adverse effect on the Company’s business. In addition, compliance with future legislation could impose additional requirements on the Company, which may be costly.
U.S. Food and Drug Administration (FDA) regulation of diagnostic products and increased FDA regulation of laboratory-developed tests (LDTs) could result in increased costs and the imposition of fines or penalties, and could have a material adverse effect upon the Company’s business.
The FDA has regulatory responsibility for instruments, test kits, reagents and other devices used by clinical laboratories. The FDA enforces laws and regulations that govern the development, testing, manufacturing, performance, labeling, advertising, marketing, distribution and surveillance of diagnostic products, and it regularly inspects and reviews the manufacturing processes and product performance of diagnostic products. LCD’s point-of-care testing devices are subject to regulation by the FDA.
Since the 1990s, the FDA has asserted that it has authority to regulate LDTs as medical devices, but has exercised enforcement discretion to refrain from systematic regulation of LDTs. In 2014, the FDA issued draft guidance describing how it intended to discontinue its enforcement discretion policy and begin regulating LDTs as medical devices; however, that draft guidance has not been finalized, and FDA has instead continued its enforcement discretion policy and has indicated that it intends to work with Congress to enact comprehensive legislative preform of diagnostics oversight. As such, LDTs developed by high complexity clinical laboratories are currently generally offered as services to health care providers under the CLIA regulatory framework administered by the Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services (HHS), without the requirement for FDA clearance or approval. There are other regulatory and legislative proposals that would increase general FDA oversight of clinical laboratories and LDTs. The outcome and ultimate impact of such proposals on the business is difficult to predict at this time. On February 20, 2020, the FDA issued a statement with a table of pharmacogenetic associations setting forth certain gene-drug interactions that the agency has determined are supported by the scientific literature to help ensure that claims being made for pharmacogenetic tests are grounded in sound science, thereby reducing the risk of enforcement actions with respect to LDTs offering claims consistent with the table. The FDA noted that while it is committed to work with Congress on new comprehensive diagnostic oversight reform legislation, it could still take enforcement actions under the current medical device framework regarding diagnostic claims the agency determines not to be sufficiently supported. Even without issuance of a finalized LDT oversight framework, in light of the April 4, 2019, FDA warning letter issued to Inova Genomics Laboratory related to certain LDTs that Inova offered, as well as the February 2020 pharmacogenetics statement, there may be an increased risk of FDA enforcement actions for laboratory tests offered by companies without FDA clearance or approval.
Current FDA regulation of the Company’s diagnostic products and potential future increased regulation of the Company’s LDTs could result in increased costs and administrative and legal actions for noncompliance, including warning letters, fines, penalties, product suspensions, product recalls, injunctions and other civil and criminal sanctions, which could have a material adverse effect upon the Company.
Failure to comply with U.S., state, local or international environmental, health and safety laws and regulations, including the U.S. Occupational Safety and Health Administration Act and the U.S. Needlestick Safety and Prevention Act, could result in fines and penalties and loss of licensure, and have a material adverse effect upon the Company’s business. 

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As previously discussed in Item 1 of Part I of this report, the Company is subject to licensing and regulation under laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as regulations relating to the safety and health of laboratory employees. Failure to comply with these laws and regulations could subject the Company to denial of the right to conduct business, fines, criminal penalties and/or other enforcement actions that would have a material adverse effect on its business. In addition, compliance with future legislation could impose additional requirements on the Company that may be costly.
Failure to comply with privacy and security laws and regulations could result in fines, penalties and damage to the Company’s reputation with customers and have a material adverse effect upon the Company’s business.
If the Company does not comply with existing or new laws and regulations related to protecting the privacy and security of personal or health information, it could be subject to monetary fines, civil penalties or criminal sanctions.
In the U.S., the Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security regulations, including the expanded requirements under U.S. Health Information Technology for Economic and Clinical Health Act (HITECH), establish comprehensive standards with respect to the use and disclosure of protected health information (PHI), by covered entities, in addition to setting standards to protect the confidentiality, integrity and security of PHI.
HIPAA restricts the Company’s ability to use or disclose PHI, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. HIPAA and HITECH provide for significant fines and other penalties for wrongful use or disclosure of PHI in violation of the privacy and security regulations, including potential civil and criminal fines and penalties. The regulations establish a complex regulatory framework on a variety of subjects, including:
The circumstances under which the use and disclosure of PHI are permitted or required without a specific authorization by the patient, including, but not limited to, treatment purposes, activities to obtain payments for the Company’s services, and its healthcare operations activities;
A patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;
The content of notices of privacy practices for PHI;
Administrative, technical and physical safeguards required of entities that use or receive PHI; and
The protection of computing systems maintaining electronic PHI.
The Company has implemented policies and procedures designed to comply with the HIPAA privacy and security requirements as applicable. The privacy and security regulations establish a “floor” and do not supersede state laws that are more stringent. Therefore, the Company is required to comply with both additional federal privacy and security regulations and varying state privacy and security laws. In addition, federal and state laws that protect the privacy and security of patient information may be subject to enforcement and interpretations by various governmental authorities and courts, resulting in complex compliance issues. For example, the Company could incur damages under state laws pursuant to an action brought by a private party for the wrongful use or disclosure of health information or other personal information.
On June 28, 2018, the California legislature passed the California Consumer Privacy Act (CCPA), which was effective January 1, 2020. The CCPA created new transparency requirements and granted California residents several new rights with regard their personal information. Failure to comply with the CCPA may result in, among other things, significant civil penalties and injunctive relief, or potential statutory or actual damages. The Company implemented processes to manage compliance with the CCPA. In addition, California residents have the right to bring a private right of action in connection with certain types of incidents. These claims may result in significant liability and potential damages.
The Company may also be required to comply with the data privacy and security laws of other countries in which it operates or with which it transfers and receives data. For example, the European Union’s (EU) General Data Protection Regulation (GDPR), which took effect May 25, 2018, created a range of new compliance obligations for subject companies and imposes penalties for noncompliance of up to the greater of €20 million or 4% of worldwide revenue. The Company has established processes and frameworks to manage compliance with the GDPR, but there remains uncertainty as to how EU supervisory authorities will interpret and enforce the regulation. The costs of compliance with the GDPR could be significant. Potential fines and penalties in the event of a violation of the GDPR could have a material adverse effect on the Company’s business and operations. In addition, similar data protection regulations addressing access, use, disclosure and transfer of personal data have been enacted or updated in countries where the Company does business, including in Asia, Latin America, Canada and Europe. The Company expects to make changes to its business practices and to incur additional costs associated with compliance with these evolving and complex regulations.
Failure to maintain the security of customer-related information or compliance with security requirements could damage the Company’s reputation with customers, cause it to incur substantial additional costs and become subject to litigation and enforcement actions.

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The Company receives and stores certain personal and financial information about its customers. In addition, the Company depends upon the secure transmission of confidential information over public networks, including information permitting cashless payments. The Company also works with third-party service providers and vendors that provide technology systems and services that are used in connection with the receipt, storage, and transmission of customer personal and financial information. A compromise in the Company’s security systems, or those of the Company's third party service providers and vendors, that results in customer personal information being obtained by unauthorized persons or the Company’s or third party's failure to comply with security requirements for financial transactions could adversely affect the Company’s reputation with its customers and others, as well as the Company’s results of operations, financial condition and liquidity. It could also result in litigation against the Company and the imposition of fines and penalties. For example, in connection with the AMCA Incident the Company has incurred, and expects to continue to incur, costs, and the Company is involved in pending and threatened litigation, as well as various government and regulatory inquiries and processes. For additional information about the AMCA Incident, see Note 16 Commitments and Contingencies to the Consolidated Financial Statements.
The Company depends on third parties to provide services critical to the Company's business, and depends on them to comply with applicable laws and regulations. Additionally, any breaches of the information technology systems of third parties could have a material adverse effect on the Company's operations.
The Company depends on third parties to provide services critical to the Company's business, including supplies, ground and air transport of clinical and diagnostic testing supplies and specimens, research products, and people, among other services. Third parties that provide services to the Company are subject to similar risks related to security of customer-related information and compliance with U.S., state, local, or international environmental, health and safety, and privacy and security laws and regulations as the Company. Any failure by third parties to comply with applicable laws, or any failure of third parties to provide services more generally, could have a material impact on the Company, whether because of the loss of the ability to receive services from the third parties, legal liability of the Company for the actions or inactions of third parties, or otherwise.
In addition, third parties to whom the Company outsources certain services or functions may process personal data, or other confidential information of the Company. A breach or attack affecting these third parties could also harm the Company's business, results of operations and reputation.
Discontinuation or recalls of existing testing products; failure to develop or acquire licenses for new or improved testing technologies; or the Company’s customers using new technologies to perform their own tests could adversely affect the Company’s business. 
From time to time, manufacturers discontinue or recall reagents, test kits or instruments used by the Company to perform laboratory testing. Such discontinuations or recalls could adversely affect the Company’s costs, testing volume and revenue.
The commercial laboratory industry is subject to changing technology and new product introductions. The Company’s success in maintaining a leadership position in genomic and other advanced testing technologies will depend, in part, on its ability to develop, acquire or license new and improved technologies on favorable terms and to obtain appropriate coverage and reimbursement for these technologies. The Company may not be able to negotiate acceptable licensing arrangements, and it cannot be certain that such arrangements will yield commercially successful diagnostic tests. If the Company is unable to license these testing methods at competitive rates, its research and development (R&D) costs may increase as a result. In addition, if the Company is unable to license new or improved technologies to expand its esoteric testing operations, its testing methods may become outdated when compared with the Company’s competition, and testing volume and revenue may be materially and adversely affected.
 In addition, advances in technology may lead to the development of more cost-effective technologies such as point-of-care testing equipment that can be operated by physicians or other healthcare providers (including physician assistants, nurse practitioners and certified nurse midwives, generally referred to herein as physicians) in their offices or by patients themselves without requiring the services of freestanding clinical laboratories. Development of such technology and its use by the Company’s customers could reduce the demand for its laboratory testing services and the utilization of certain tests offered by the Company and negatively impact its revenues.
 Currently, most commercial laboratory testing is categorized as high or moderate complexity, and thereby is subject to extensive and costly regulation under CLIA. The cost of compliance with CLIA makes it impractical for most physicians to operate clinical laboratories in their offices, and other laws limit the ability of physicians to have ownership in a laboratory and to refer tests to such a laboratory. Manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care laboratory equipment to physicians and by selling test kits approved for home or physician office use to both physicians and patients. Diagnostic tests approved for home use are automatically deemed to be “waived” tests under CLIA and may be performed in physician office laboratories as well as by patients in their homes with minimal regulatory oversight. Other tests meeting certain FDA criteria also may be classified as “waived” for CLIA purposes. The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used by clinical laboratories, and it has taken responsibility from the U.S. Centers for Disease Control and Prevention for classifying the complexity of tests for CLIA purposes. Increased approval of “waived” test kits could

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lead to increased testing by physicians in their offices or by patients at home, which could affect the Company’s market for laboratory testing services and negatively impact its revenues.
Healthcare reform and changes to related products (e.g., health insurance exchanges), changes in government payment and reimbursement systems, or changes in payer mix, including an increase in capitated reimbursement mechanisms and evolving delivery models, could have a material adverse effect on the Company's revenues, profitability and cash flow.
LCD's testing services are billed to MCOs, Medicare, Medicaid, physicians and physician groups, hospitals, patients and employer groups. Most testing services are billed to a party other than the physician or other authorized person who ordered the test. Increases in the percentage of services billed to government and MCOs could have an adverse effect on the Company’s revenues.
The Company serves many MCOs. These organizations have different contracting philosophies, which are influenced by the design of their products. Some MCOs contract with a limited number of clinical laboratories and engage in direct negotiation of rates. Other MCOs adopt broader networks with generally uniform fee structures for participating clinical laboratories. In some cases, those fee structures are specific to independent clinical laboratories, while the fees paid to hospital-based and physician-office laboratories may be different, and are typically higher. MCOs may also offer Managed Medicare or Managed Medicaid plans. In addition, some MCOs use capitation rates to fix the cost of laboratory testing services for their enrollees. Under a capitated reimbursement arrangement, the clinical laboratory receives a per-member, per-month payment for an agreed upon menu of laboratory tests provided to MCO members during the month, regardless of the number of tests performed.
Capitation shifts the risk of increased test utilization (and the underlying mix of testing services) to the commercial laboratory provider. The Company makes significant efforts to obtain adequate compensation for its services in its capitated arrangements. For the year ended December 31, 2019, such capitated contracts accounted for approximately $298.0 million, or 4.3%, of LCD's revenues.
The Company's ability to attract and retain MCOs is critical given the impact of healthcare reform, related products and expanded coverage (e.g. health insurance exchanges and Medicaid expansion) and evolving value-based care and risk-based reimbursement delivery models (e.g., accountable care organizations (ACOs) and Independent Physician Associations (IPAs)).
A portion of the managed care fee-for-service revenues is collectible from patients in the form of deductibles, coinsurance and copayments. As patient cost-sharing has been increasing, the Company's collections may be adversely impacted.
 In addition, Medicare and Medicaid and private insurers have increased their efforts to control the cost, utilization and delivery of healthcare services, including commercial laboratory services. Measures to regulate healthcare delivery in general, and clinical laboratories in particular, have resulted in reduced prices, added costs and decreased test utilization for the commercial laboratory industry by increasing complexity and adding new regulatory and administrative requirements. Pursuant to legislation passed in late 2003, the percentage of Medicare beneficiaries enrolled in Managed Medicare plans has increased. The percentage of Medicaid beneficiaries enrolled in Managed Medicaid plans has also increased, and is expected to continue to increase; however, changes to, or repeal of, the Patient Protection and Affordable Care Act (ACA) may continue to affect coverage, reimbursement, and utilization of laboratory services, as well as administrative requirements, in ways that are currently unpredictable. Further healthcare reform could adversely affect laboratory reimbursement from Medicare, Medicaid or commercial carriers.
The Company also experienced delays in the pricing and implementation of new molecular pathology codes among various payers, including Medicaid, Medicare and commercial carriers. While some delays were expected, several non-commercial payers required an extended period of time to price key molecular codes, and a number of those payers, mostly government entities, indicated that they would no longer pay for tests that they had previously covered. These issues (particularly payer policy changes) and changes in coverage had a negative impact on revenue, revenue per requisition, and margins and cash flows beginning in 2014, and are expected to have a continuing negative impact. Similarly, the Clinical Laboratory Fee Schedule (CLFS) coding and billing changes related to toxicology and other procedures were implemented in 2016 and 2017. The Company experienced delays in the pricing and implementation of the new toxicology codes; however, the Company largely overcame issues related to price and margins through direct negotiation with the associated payers. Limited coding and billing changes related to other procedure types were implemented in 2018 and 2019. While limited changes are expected to be implemented in 2020, the Company expects some delays in pricing and implementation of these new codes.
In addition, some MCOs are implementing, directly or through third parties, various types of laboratory benefit management programs that may include lab networks, utilization management tools (such as prior authorization and/or prior notification), and claims edits, which may impact coverage or reimbursement for commercial laboratory tests. Some of these programs address commercial laboratory testing broadly, while others are focused on certain types of testing such as molecular, genetic and toxicology testing.
The Company expects the efforts to impose reduced reimbursement, more stringent payment policies, and utilization and cost controls by government and other payers to continue. If LCD cannot offset additional reductions in the payments it receives for

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its services by reducing costs, increasing test volume, and/or introducing new services and procedures, it could have a material adverse effect on the Company’s revenues, profitability and cash flows. In 2014, Congress passed PAMA, requiring Medicare to change the way payment rates are calculated for tests paid under the CLFS, and to base the payment on the weighted median of rates paid by private payers. On June 23, 2016, CMS issued a final rule to implement PAMA that required applicable laboratories, including LCD, to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2017. CMS exercised enforcement discretion to permit reporting for an additional 60 days, through May 30, 2017. CMS used that private market data to calculate weighted median prices for each test (based on applicable current procedural technology (CPT) codes) to represent the new CLFS rates beginning in 2018, subject to certain phase-in limits, which were revised by Congress in 2019. For 2018-2020, a test price cannot be reduced by more than 10.0% per year; for 2021-2023, a test price cannot be reduced by more than 15.0% per year. The process of data reporting and repricing will be repeated every three years for Clinical Diagnostic Laboratory Tests (CDLTs) beginning in 2021. Under the current law, the second data reporting period for CDLTs will occur during the first quarter of 2021 (based on data collected in 2019), and new CLFS rates for CDLTs will be established based on that data beginning in 2022, subject to the previously described phase-in limits for 2022-2023. The third data reporting period for CDLTs will occur during the first quarter of 2024, and new CLFS rates for CDLTs will be established based on that data beginning in 2025. CLFS rates for 2024 and subsequent periods will not be subject to phase-in limits. CLFS rates for Advanced Diagnostic Laboratory Tests (ADLTs) will be updated annually. CMS published its initial proposed CLFS rates under PAMA for 2018-2020 on September 22, 2017. Following a public comment period, CMS made adjustments and published final CLFS rates for 2018-2020 on November 17, 2017, with additional adjustments published on December 1, 2017. For 2019, the Company realized a net reduction in reimbursement of approximately $107.0 million from all payers affected by the CLFS (approximately $70.0 million in 2018). Unless implementation of PAMA is further delayed or changed, an additional reduction of approximately $90.0 million is expected for 2020, from all payers affected by the CLFS.
Healthcare reform legislation also contains numerous regulations that will require the Company, as an employer, to implement significant process and record-keeping changes to be in compliance. These changes increase the cost of providing healthcare coverage to employees and their families. Given the limited release of regulations to guide compliance, as well as potential changes to the ACA, the exact impact to employers, including the Company, is uncertain.
Changes in government regulation or in practices relating to the biopharmaceutical industry could decrease the need for certain services that Covance Drug Development (CDD) provides.
CDD assists biopharmaceutical companies in navigating the regulatory drug approval process. Changes in regulations such as a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, or an increase in regulatory requirements that CDD has difficulty satisfying or that make its services less competitive, could eliminate or substantially reduce the demand for its services. Also, if government efforts to contain drug costs impact biopharmaceutical company profits from new drugs, or if health insurers were to change their practices with respect to reimbursement for biopharmaceutical products, some of CDD’s customers may spend less, or reduce their growth in spending on R&D.
On December 13, 2016, the 21st Century Cures Act was signed into law. This Act provides funding designed to increase government spending on certain drug development initiatives; contains several provisions designed to help make the drug development process more streamlined and efficient; and allows the FDA to increase staffing to support drug development, review and regulation. These provisions should be helpful to biopharmaceutical companies and contract research organizations (CROs), including CDD, to the extent that they capitalize on the use of data, adaptive trial designs, real-world evidence, biomarkers and other development tools that are accepted by the FDA.
In addition, implementation of healthcare reform legislation that adds costs could limit the profits that can be made from the development of new drugs. This could adversely affect R&D expenditures by biopharmaceutical companies, which could in turn decrease the business opportunities available to CDD both in the U.S. and other countries. New laws or regulations may create a risk of liability, increase CDD costs or limit service offerings through CDD.
Failure to comply with the regulations of drug regulatory agencies, such as the FDA, the Medicines and Healthcare products Regulatory Agency in the United Kingdom (U.K.), the European Medicines Agency, the National Medical Products Administration in China (NMPA), and the Pharmaceuticals and Medical Devices Agency in Japan, could result in sanctions and/or remedies against CDD and have a material adverse effect upon the Company.
The operation of CDD's preclinical laboratory facilities and clinical trial operations must conform to good laboratory practice (GLP) and good clinical practice (GCP), as applicable, as well as all other applicable standards and regulations, as further described in Item 1 of Part I of this report. The business operations of CDD’s clinical and preclinical laboratories also require the import, export and use of medical devices, in vitro diagnostic devices, reagents, and human and animal biological products. Such activities are subject to numerous applicable local and international regulations with which CDD must comply. If CDD does not comply, CDD could potentially be subject to civil, criminal or administrative sanctions and/or remedies, including suspension of its ability to conduct preclinical and clinical studies, and to import or export to or from certain countries, which could have a material adverse

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effect upon the Company.
Additionally, certain CDD services and activities must conform to current good manufacturing practice GMP, as further described in Item 1 of Part I of this report. Failure to maintain compliance with GLP, GCP, or GMP regulations and other applicable requirements of various regulatory agencies could result in warning or untitled letters, fines, unanticipated compliance expenditures, suspension of manufacturing, and civil, criminal or administrative sanctions and/or remedies against CDD, including suspension of its laboratory operations, which could have a material adverse effect upon the Company.
Increased competition, including price competition, could have a material adverse effect on the Company’s revenues and profitability.
As further described in Item 1 of Part I of this report, both LCD and CDD operate in highly competitive industries. The commercial laboratory business is intensely competitive both in terms of price and service. Pricing of laboratory testing services is often one of the most significant factors used by physicians, third-party payers and consumers in selecting a laboratory. As a result of significant consolidation in the commercial laboratory industry, larger commercial laboratory providers are able to increase cost efficiencies afforded by large-scale automated testing. This consolidation results in greater price competition. LCD may be unable to increase cost efficiencies sufficiently, if at all, and as a result, its net earnings and cash flows could be negatively impacted by such price competition. The Company may also face increased competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry. Additionally, the Company may also face changes in fee schedules, competitive bidding for laboratory services, or other actions or pressures reducing payment schedules as a result of increased or additional competition.
Competitors in the CRO industry range from hundreds of smaller CROs to a limited number of large CROs with global capabilities. CDD’s main competition consists of these small and large CROs, as well as in-house departments of biopharmaceutical companies and, to a lesser extent, select universities and teaching hospitals. CDD’s services have from time to time experienced periods of increased price competition that had an adverse effect on a segment's profitability and consolidated revenues and net income. There is competition among CROs for both customers and potential acquisition candidates. Additionally, few barriers to entering the CRO industry further increases possible new competition.
These competitive pressures may affect the attractiveness or profitability of LCD’s and CDD’s services, and could adversely affect the financial results of the Company.
Failure to obtain and retain new customers, the loss of existing customers or material contracts, or a reduction in services or tests ordered or specimens submitted by existing customers, or the inability to retain existing and/or create new relationships with health systems could impact the Company’s ability to successfully grow its business.
To maintain and grow its business, the Company needs to obtain and retain new customers and business partners. In addition, a reduction in tests ordered or specimens submitted by existing customers, a decrease in demand for the Company's services from existing customers, or the loss of existing contracts, without offsetting growth in its customer base, could impact the Company's ability to successfully grow its business and could have a material adverse effect on the Company’s revenues and profitability. The Company competes primarily on the basis of the quality of services, reporting and information systems, reputation in the medical community and the drug development industry, the pricing of services and ability to employ qualified personnel. The Company's failure to successfully compete on any of these factors could result in the loss of existing customers, an inability to gain new customers and a reduction in the Company's business.
Continued and increased consolidation of MCOs, biopharmaceutical companies, health systems, physicians and other customers could adversely affect the Company's business.
Many healthcare companies and providers, including MCOs, biopharmaceutical companies, health systems and physician practices are consolidating through mergers, acquisitions, joint ventures and other types of transactions and collaborations. In addition to these more traditional horizontal mergers that involve entities that previously competed against each other, the healthcare industry is experiencing an increase in vertical mergers, which involve entities that previously did not offer competing goods or services. As the healthcare industry consolidates, competition to provide goods and services may become more intense, and vertical mergers may give those combined companies greater control over more aspects of healthcare, including increased bargaining power. This competition and increased customer bargaining power may adversely affect the price and volume of the Company’s services.
In addition, as the broader healthcare industry trend of consolidation continues, including the acquisition of physician practices by health systems, relationships with hospital-based health systems and integrated delivery networks are becoming more important. LCD has a well-established base of relationships with those systems and networks, including collaborative agreements. LCD's inability to retain its existing relationships with those physicians as they become part of healthcare systems and networks and/or to create new relationships could impact its ability to successfully grow its business.

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Changes or disruption in services or supplies provided by third parties, including transportation, could adversely affect the Company’s business.
The Company depends on third parties to provide services critical to the Company’s business. Although the Company has a significant proprietary network of ground and air transport capabilities, certain of the Company's businesses are heavily reliant on third-party ground and air travel for transport of clinical trial and diagnostic testing supplies and specimens, research products, and people. A significant disruption to these travel systems, or the Company's access to them, could have a material adverse effect on the Company's business. The Company is also reliant on an extensive network of third-party suppliers and vendors of certain services and products, including for certain animal populations. Disruptions to the continued supply of these services, products, or animal populations may arise from export/import restrictions or embargoes, political or economic instability, pressure from animal rights activists, adverse weather, natural disasters, public health crises, transportation disruptions, or other causes, as well as from termination of relationships with suppliers or vendors for their failure to follow the Company’s performance standards and requirements. Disruption of supply could have a material adverse effect on the Company’s business.
Damage or disruption to the Company’s facilities could adversely affect the Company’s business.
Many of the Company’s facilities could be difficult to replace in a short period of time. Any event that causes a disruption of the operation of these facilities might impact the Company's ability to provide service to customers and, therefore, could have a material adverse effect on the Company's financial condition, results of operations and cash flows.
The Company bears financial risk for contracts that, for reasons beyond the Company's control, may be underpriced, subject to cost overruns, delayed, or terminated or reduced in scope.
The Company has many contracts that are structured as fixed-price for fixed-contracted services or fee-for-service with a cap. The Company bears the financial risk if these contracts are underpriced or if contract costs exceed estimates. Such underpricing or significant cost overruns could have an adverse effect on the Company's business, results of operations, financial condition and cash flows.
Many of CDD’s contracts, in particular, provide for services on a fixed-price or fee-for-service with a cap basis and they may be terminated or reduced in scope either immediately or upon notice. Cancellations may occur for a variety of reasons, including:
Failure of products to satisfy safety requirements;
Unexpected or undesired results of the products;
Insufficient clinical trial subject enrollment;
Insufficient investigator recruitment;
A customer's decision to terminate the development of a product or to end a particular study; and
CDD’s failure to perform its duties properly under the contract.
Although its contracts often entitle it to receive the costs of winding down the terminated projects, as well as all fees earned up to the time of termination, the loss, reduction in scope or delay of a large contract or the loss, delay or conclusion of multiple contracts could materially adversely affect CDD.
Contract research services in the drug development industry create liability risks.
In contracting to work on drug development trials and studies, CDD faces a range of potential liabilities, including:
Errors or omissions that create harm to clinical trial subjects during a trial or to consumers of a drug after the trial is completed and regulatory approval of the drug has been granted;
General risks associated with clinical pharmacology facilities, including negative consequences from the administration of drugs to clinical trial participants or the professional malpractice of clinical pharmacology physicians;
Risks that animals in CDD’s facilities may be infected with diseases that may be harmful and even lethal to themselves and humans despite preventive measures contained in CDD's business policies, including those for the quarantine and handling of imported animals; and
Errors and omissions during a trial that may undermine the usefulness of a trial or data from the trial or study or may delay the entry of a drug to the market.
CDD contracts with physicians, also referred to as investigators, to conduct the clinical trials to test new drugs on clinical trial subjects. These tests can create a risk of liability for personal injury or death to clinical trial subjects resulting from negative reactions to the drugs administered or from professional malpractice by third party investigators.
While CDD endeavors to include in its contracts provisions entitling it to be indemnified and entitling it to a limitation of liability, these provisions are not always successfully obtained and, even if obtained, do not uniformly protect CDD against liability arising from certain of its own actions. CDD could be materially and adversely affected if it were required to pay damages or bear the costs of defending any claim that is not covered by a contractual indemnification provision, or in the event that a party which must indemnify it does not fulfill its indemnification obligations, or in the event that CDD is not successful in limiting its liability

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or in the event that the damages and costs exceed CDD's insurance coverage. CDD may also be required to agree to contract provisions with clinical trial sites or its customers related to the conduct of clinical trials, and CDD could be materially and adversely affected if it were required to indemnify a site or customer against claims pursuant to such contract terms. There can be no assurance that CDD will be able to maintain sufficient insurance coverage on acceptable terms.
Adverse results in material litigation matters could have a material adverse effect upon the Company’s business. 
The Company may become subject in the ordinary course of business to material legal actions related to, among other things, intellectual property disputes, contract disputes, data and privacy issues, professional liability and employee-related matters. The Company may also receive inquiries and requests for information from governmental agencies and bodies, including Medicare or Medicaid payers, requesting comment and/or information on allegations of billing irregularities, billing and pricing arrangements, or privacy practices that are brought to their attention through audits or third parties. Legal actions could result in substantial monetary damages as well as damage to the Company’s reputation with customers, which could have a material adverse effect upon its business.
The Company's quarterly operating results may vary.
The Company's operating results, may vary significantly from quarter to quarter and are influenced by factors over which the Company has little control, such as:
Changes in the general global economy;
Exchange rate fluctuations;
The commencement, completion, delay or cancellation of large projects or contracts or groups of projects;
The progress of ongoing projects;
Weather;
The timing of and charges associated with completed acquisitions or other events; and
Changes in the mix of the Company's services.
The Company believes that operating results for any particular quarter are not necessarily a meaningful indication of future results. While fluctuations in the Company's quarterly operating results could negatively or positively affect the market price of the Company's common stock, these fluctuations may not be related to the Company's future overall operating performance.
The failure to successfully obtain, maintain and enforce intellectual property rights and defend against challenges to the Company’s intellectual property rights could adversely affect the Company.
Many of the Company’s services, products and processes rely on intellectual property, including patents, copyrights, trademarks and trade secrets. In some cases, that intellectual property is owned by another party and licensed to the Company, sometimes exclusively. The value of the Company’s intellectual property relies in part on the Company’s ability to maintain its proprietary rights to such intellectual property. If the Company is unable to obtain or maintain the proprietary rights to its intellectual property, if it is unable to prevent attempted infringement against its intellectual property, or if it is unable to defend against claims that it is infringing on another party’s intellectual property, the Company could be adversely affected. These adverse effects could include the Company having to abandon, alter and/or delay the deployment of products, services or processes that rely on such intellectual property; having to procure and pay for licenses from the holders of intellectual property rights that the Company seeks to use; and having to pay damages, fines, court costs and attorney's fees in connection with intellectual property litigation.
CDD’s revenues depend on the biopharmaceutical industry.
CDD’s revenues depend greatly on the expenditures made by the biopharmaceutical industry in R&D. In some instances, biopharmaceutical companies are reliant on their ability to raise capital in order to fund their R&D projects. Biopharmaceutical companies are also reliant on reimbursement for their products from government programs and commercial payers. Accordingly, economic factors and industry trends affecting CDD’s customers in these industries may also affect CDD. If these companies were to reduce the number of R&D projects they conduct or outsource, whether through the inability to raise capital, reductions in reimbursement from governmental programs or commercial payers, industry trends, economic conditions or otherwise, CDD could be materially adversely affected.
Actions of animal rights activists may have an adverse effect on the Company.
CDD's preclinical services utilize animals in preclinical testing of the safety and efficacy of drugs. Such activities are required for the development of new medicines and medical devices under regulatory regimes in the U.S., Europe, Japan and other countries. Acts of vandalism and other acts by animal rights activists who object to the use of animals in drug development could have an adverse effect on the Company.
Animal populations may suffer diseases that can damage CDD's inventory, harm its reputation, result in decreased sales of research products or result in other liability.

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It is important that research products be free of diseases, including infectious diseases. The presence of diseases can distort or compromise the quality of research results, cause loss of animals in CDD’s inventory, result in harm to humans or outside animal populations if the disease is not contained to animals in inventory, or result in other losses. Such results could harm CDD’s reputation or have an adverse effect on CDD's financial condition, results of operations, and cash flows.
Failure to conduct animal research in compliance with animal welfare laws and regulations could result in sanctions and/or remedies against CDD and have a material adverse effect upon the Company.
The conduct of animal research at CDD’s facilities must be in compliance with applicable laws and regulations in the jurisdictions in which those activities are conducted. These laws and regulations include the U.S Animal Welfare Act (AWA), which governs the care and use of warm-blooded animals for research in the U.S. other than laboratory rats, mice and chickens, and is enforced through periodic inspections by the U.S. Department of Agriculture (USDA). The AWA establishes facility standards regarding several aspects of animal welfare, including housing, ventilation, lighting, feeding and watering, handling, veterinary care and recordkeeping. Similar laws and regulations apply in other jurisdictions in which CDD conducts animal research, including the European Union (E.U.) and China. CDD complies with licensing and registration requirement standards set by these laws and regulations in the jurisdictions in which it conducts animal research. If an enforcement agency determines that CDD’s equipment, facilities, laboratories or processes do not comply with applicable standards, it may issue an inspection report documenting the deficiencies and setting deadlines for any required corrective actions. For noncompliance, the agency may take action against CDD that may include fines, suspension and/or revocation of animal research licenses, or confiscation of research animals.
An inability to attract and retain experienced and qualified personnel, including key management personnel, could adversely affect the Company’s business. 
The loss of key management personnel or the inability to attract and retain experienced and qualified employees at the Company’s clinical laboratories, drug development, and diagnostic facilities could adversely affect the business. The success of the Company is dependent in part on the efforts of key members of its management team. Success in maintaining the Company’s leadership position in genomic and other advanced testing and diagnostic technologies will depend in part on the Company’s ability to attract and retain skilled research professionals. In addition, the success of the Company’s early discovery, clinical and commercial laboratories also depends on employing and retaining qualified and experienced professionals, including specialists, who perform laboratory research activities and testing services. The same is true for patient-facing staff with specialized training required to perform activities related to specimen collection or clinical research activities. In the future, if competition for the services of these professionals increases, the Company may not be able to continue to attract and retain individuals in its markets. Changes in key management, or the ability to attract and retain qualified personnel, could lead to strategic and operational challenges and uncertainties, distractions of management from other key initiatives, and inefficiencies and increased costs, any of which could adversely affect the Company’s business, financial condition, results of operations, and cash flows.
Unproductive labor environment, union strikes, work stoppages, Works Council negotiations, or failure to comply with labor or employment laws could adversely affect the Company's operations and have a material adverse effect upon the Company's business.
The Company is a party to a limited number of collective bargaining agreements with various labor unions and is subject to unionization activity, employment and labor laws and unionization activity in the U.S. Similar employment and labor obligations exist across other countries in which it conducts business, including appropriate engagement with Works Councils in Europe. Disputes with regard to the terms of labor agreements or obligations for consultation, potential inability to negotiate acceptable contracts with these unions, unionization activity, or a failure to comply with labor or employment laws could result in, among other things, labor unrest, strikes, work stoppages, slowdowns by the affected workers, fines and penalties. If any of these events were to occur, or other employees were to become unionized, the Company could experience a significant disruption of its operations or higher ongoing labor costs, either of which could have a material adverse effect upon the Company's business. Additionally, future labor agreements, or renegotiation of labor agreements or provisions of labor agreements, or changes in labor or employment laws, could compromise its service reliability and significantly increase its costs, which could have a material adverse effect upon the Company's business. Also, the Company may incur substantial additional costs and become subject to litigation and enforcement actions if the Company fails to comply with legal requirements affecting its workforce and labor practices, including laws and regulations related to wage and hour practices, Office of Federal Contract Compliance Programs (OFCCP) compliance, and unlawful workplace harassment and discrimination.
A significant increase in LCD's or CDD's days sales outstanding could have an adverse effect on the Company’s business, including its cash flow, by increasing its bad debt or decreasing its cash flow.
Billing for laboratory services is a complex process. Laboratories bill many different payers, including doctors, patients, hundreds of insurance companies, Medicare, Medicaid and employer groups, all of which have different billing requirements. In addition to billing complexities, LCD has experienced an increase in patient responsibility as a result of managed care fee-for-service plans that continue to increase patient deductibles, coinsurance and copayments, or implement restrictive coverage or

40



administrative policies that can further increase patient costs. LCD expects this trend to continue. A material increase in LCD’s days sales outstanding level could have an adverse effect on the Company's business, including potentially increasing its bad debt rate and decreasing its cash flows. Although CDD does not face the same level of complexity in its billing processes, it could also experience delays in billing or collection, and a material increase in CDD’s days sales outstanding could have an adverse effect on the Company’s business, including potentially decreasing its cash flows.
Failure in the Company’s information technology systems or delays or failures in the development and implementation of updates or enhancements to those systems could significantly increase testing turnaround time or delay billing processes and otherwise disrupt the Company’s operations or customer relationships.
 The Company’s operations and customer relationships depend, in part, on the continued performance of its information technology systems. Despite network security measures and other precautions the Company has taken, its information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. In addition, the Company is in the process of integrating the information technology systems of its recently acquired subsidiaries, and the Company may experience system failures or interruptions as a result of this process. Sustained system failures or interruption of the Company’s systems in one or more of its operations could disrupt the Company’s ability to process laboratory requisitions, perform testing, provide test results or drug development data in a timely manner and/or bill the appropriate party. Failure of the Company’s information technology systems could adversely affect the Company’s business, profitability and financial condition.
Hardware and software failures, delays in the operation of computer and communications systems, the failure to implement new systems or system enhancements to existing systems, and cybersecurity breaches may harm the Company.
The Company's success depends on the efficient and uninterrupted operation of its computer and communications systems. A failure of the network or data-gathering procedures could impede the processing of data, delivery of databases and services, customer orders and day-to-day management of the business and could result in the corruption or loss of data. While certain operations have appropriate disaster recovery plans in place, there currently are not redundant facilities everywhere in the world to provide information technology capacity in the event of a system failure. Despite any precautions the Company may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins, cybersecurity breaches and similar events at the Company's various computer facilities could result in interruptions in the flow of data to the servers and from the servers to customers. In addition, any failure by the computer environment to provide required data communications capacity could result in interruptions in service. In the event of a delay in the delivery of data, the Company could be required to transfer data collection operations to an alternative provider of server-hosting services. Such a transfer could result in delays in the ability to deliver products and services to customers. Additionally, significant delays in the planned delivery of system enhancements, or improvements and inadequate performance of the systems once they are completed could damage the Company's reputation and harm the business.
Security breaches and unauthorized access to the Company's or its customers’ data could harm the Company’s reputation and adversely affect its business.
The Company has experienced and expects to continue to experience attempts by computer programmers and hackers to attack and penetrate the Company’s layered security controls, like the 2018 ransomware attack. The Company has also experienced and expects to continue to experience similar attempts to attack and penetrate the systems of third-party suppliers and vendors to whom the Company has provided data, like the 2019 data breach of Retrieval-Masters Credit Bureau, Inc. d/b/a/ American Medical Collections Agency (AMCA). These attempts, if successful, could result in the misappropriation or compromise of personal information or proprietary or confidential information stored within the Company's systems or within the systems of third-parties, create system disruptions or cause shutdowns. External actors may be able to develop and deploy viruses, worms and other malicious software programs that attack the Company’s systems, the systems of third-parties, or otherwise exploit any security vulnerabilities. Outside parties may also attempt to fraudulently induce employees to take actions, including the release of confidential or sensitive information or to make fraudulent payments through illegal electronic spamming, phishing, spear phishing, or other tactics. The Company has robust information security procedures and other safeguards in place, including evaluating the cybersecurity status of third-party suppliers and vendors that will have access to the Company’s data or information technology systems, which are monitored and routinely tested internally and by external parties. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate all of these techniques or to implement adequate preventive measures. In addition, as cyber threats continue to evolve, the Company may be required to expend additional resources to continue to enhance the Company’s information security measures or to investigate and remediate any information security vulnerabilities. The Company’s remediation efforts may not be successful and could result in interruptions, delays or cessation of service. This could also impact the cost and availability of cyber insurance to the Company. Breaches of the Company’s or third-parties' security measures and the unauthorized dissemination of personal, proprietary or confidential information about the Company or its customers or other third-parties could expose customers’ private information. Such breaches could expose customers to the risk of financial or medical identity theft or expose the Company or other third-parties to a risk of loss or misuse of this information, result in litigation and

41



potential liability for the Company, damage the Company’s brand and reputation or otherwise harm the Company’s business. Any of these disruptions or breaches of security could have a material adverse effect on the Company’s business, regulatory compliance, financial condition and results of operations.
Operations may be disrupted and adversely impacted by the effects of natural disasters, political crises, public health crises, and other events outside of the Company's control.
Natural disasters, such as adverse weather, fires, earthquakes, power shortages and outages, political crises, such as terrorism, war, political instability, or other conflict, criminal activities, public health crises, such as coronavirus (COVID-19) and disease epidemics and pandemics, and other disruptions or events outside of the Company’s control could negatively affect the Company’s operations. Any of these events may result in a temporary decline of volumes in both segments. In addition, such events may temporarily interrupt the Company’s ability to transport specimens, the Company's ability to efficiently commence studies, the Company’s information technology systems, the Company’s ability to utilize certain laboratories, and/or the Company’s ability to receive material from its suppliers. Such events can also affect customer operations and thereby impact testing volume. Long-term disruptions in the infrastructure and operations caused by such events (particularly involving locations in which the Company has operations), could harm the Company's operating results.
A significant deterioration in the economy could negatively impact testing volumes, drug development services, cash collections and the availability of credit.
The Company’s operations are dependent upon ongoing demand for diagnostic testing and drug development services by patients, physicians, hospitals, MCOs, biopharmaceutical companies and others. A significant downturn in the economy could negatively impact the demand for diagnostic testing and drug development services, as well as the ability of customers to pay for services rendered. In addition, uncertainty in the credit markets could reduce the availability of credit and impact the Company’s ability to meet its financing needs in the future.
Foreign currency exchange fluctuations could have an adverse effect on the Company’s business.
The Company has business and operations outside the U.S., and CDD derives a significant portion of its revenues from international operations. Since the Company's consolidated financial statements are denominated in U.S. dollars, fluctuations in exchange rates from period to period will have an impact on reported results. In addition, CDD may incur costs in one currency related to its services or products for which it is paid in a different currency. As a result, factors associated with international operations, including changes in foreign currency exchange rates, could significantly affect CDD's results of operations, financial condition and cash flows.
The Company's international operations could subject it to additional risks and expenses that could adversely impact the business or results of operations.
The Company's international operations expose it to risks from failure to comply with foreign laws and regulations that differ from those under which the Company operates in the U.S. In addition, the Company may be adversely affected by other risks of expanded operations in foreign countries, including, but not limited to, changes in reimbursement by foreign governments for services provided by the Company; compliance with export controls and trade regulations; changes in tax policies or other foreign laws; compliance with foreign labor and employee relations laws and regulations; restrictions on currency repatriation; judicial systems that less strictly enforce contractual rights; countries that do not have clear or well-established laws and regulations concerning issues relating to commercial laboratory testing or drug development services; countries that provide less protection for intellectual property rights; and procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services. Further, international operations could subject the Company to additional expenses that the Company may not fully anticipate, including those related to enhanced time and resources necessary to comply with foreign laws and regulations, difficulty in collecting accounts receivable and longer collection periods, and difficulties and costs of staffing and managing foreign operations. In some countries, the Company's success will depend in part on its ability to form relationships with local partners. The Company's inability to identify appropriate partners or reach mutually satisfactory arrangements could adversely affect the business and operations.
Expanded international operations may increase the Company’s exposure to liabilities under the anti-corruption laws.
Anti-corruption laws in the countries where the Company conducts business, including the U.S. Foreign Corrupt Practices Act (FCPA), U.K. Bribery Act, and similar laws in other jurisdictions, prohibit companies and their intermediaries from engaging in bribery including improperly offering, promising, paying or authorizing the giving of anything of value to individuals or entities for the purpose of corruptly obtaining or retaining business. The Company operates in some parts of the world where corruption may be common and where anti-corruption laws may conflict to some degree with local customs and practices. The Company maintains an anti-corruption program including policies, procedures and training and safeguards in the engagement and management of third parties acting on the Company’s behalf. Despite these safeguards, the Company cannot guarantee protection from corrupt acts committed by employees or third parties associated with the Company. Violations or allegations of violations of anti-corruption

42



laws could have a significant adverse effect on the business or results of operations.
Changes in tax laws and regulations or the interpretation of such may have a significant impact on the financial position, results of operations and cash flows of the Company.
U.S. and foreign governments continue to review, reform and modify tax laws, including with respect to the Organisation for Economic Co-operation and Development’s base erosion and profit shifting initiative. Changes in tax laws and regulations could result in material changes to the domestic and foreign taxes that the Company is required to provide for and pay.
In addition, the Company is subject to regular audits with respect to its various tax returns and processes in the jurisdictions in which it operates. Errors or omissions in tax returns, process failures or differences in interpretation of tax laws by tax authorities and the Company may lead to litigation, payments of additional taxes, penalties and interest.
A failure to identify and successfully close and integrate strategic acquisition targets could have a material adverse effect on the Company's business objectives and its revenues and profitability.
Part of the Company's strategy involves deploying capital in investments that enhance the Company's business, which includes pursuing strategic acquisitions to strengthen the Company's scientific capabilities and enhance therapeutic expertise, enhance esoteric testing and global drug development capabilities, and increase presence in key geographic areas. Since 2015, the Company has invested net cash of approximately $7.2 billion and equity of $1.8 billion in strategic business acquisitions. However, the Company cannot assure that it will be able to identify acquisition targets that are attractive to the Company or that are of a large enough size to have a meaningful impact on the Company's operating results. Furthermore, the successful closing and integration of a strategic acquisition entails numerous risks, including, among others:
Failure to obtain regulatory clearance, including due to antitrust concerns;
Loss of key customers or employees;
Difficulty in consolidating redundant facilities and infrastructure and in standardizing information and other systems;
Unidentified regulatory problems;
Failure to maintain the quality of services that such companies have historically provided;
Unanticipated costs and other liabilities;
Potential liabilities related to litigation including the acquired companies;
Potential periodic impairment of goodwill and intangible assets acquired;
Coordination of geographically separated facilities and workforces; and
The potential disruption of the ongoing business and diversion of management's resources.
The Company cannot assure that current or future acquisitions, if any, or any related integration efforts will be successful, or that the Company's business will not be adversely affected by any future acquisitions, including with respect to revenues and profitability. Even if the Company is able to successfully integrate the operations of businesses that it may acquire in the future, the Company may not be able to realize the benefits that it expects from such acquisitions.
The Company’s level of indebtedness could adversely affect the Company’s liquidity, results of operations and business.
At December 31, 2019, indebtedness on the Company's outstanding Senior Notes totaled approximately $5,860.0 million in aggregate principal. The Company is also a party to credit agreements relating to a $1.0 billion revolving credit facility and a 2019 term loan with a balance of $375.0 million as of December 31, 2019. Under the term loan facility and the revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment-grade-rated borrowers, and the Company is required to maintain a leverage ratio within certain limits. 
The Company’s level of indebtedness could adversely affect its business. In particular, it could increase the Company’s vulnerability to sustained, adverse macroeconomic weakness, limit its ability to obtain further financing, and limit its ability to pursue certain operational and strategic opportunities, including large acquisitions.
The Company may also enter into additional transactions or credit facilities, including other long-term debt, which may increase its indebtedness and result in additional restrictions upon the business. In addition, major debt rating agencies regularly evaluate the Company's debt based on a number of factors. There can be no assurance that the Company will be able to maintain its existing debt ratings, and failure to do so could adversely affect the Company's cost of funds, liquidity and access to capital markets.
Global economic conditions and government and regulatory changes, including, but not limited to, the U.K.'s exit from the European Union (E.U.) could adversely impact the Company’s business and results of operations.
The Company could be adversely impacted due to the consequences of changes in the economy, governments or regulations across the globe. On January 31, 2020 the U.K. withdrew from its membership of the E.U. (often referred to as Brexit). During an implementation period which is due to end on December 31, 2020, E.U. laws and regulations will continue to apply to the U.K. The terms of future relations between the U.K. and E.U. following this implementation period have not yet been determined. Until

43



this process is completed, it is difficult to anticipate how the clinical trial landscape in the U.K. might change in the next several years.
This type of development or other government or regulatory change could depress economic activity, which could adversely impact the Company’s business, financial condition and results of operations. This could include long-term volatility in the currency markets and long-term detrimental effects on the value of affected currencies.
The Company’s uses of financial instruments to limit its exposure to interest rate and currency fluctuations could expose it to risks and financial losses that may adversely affect the Company’s financial condition, liquidity and results of operations.
To reduce the Company’s exposure to interest rate fluctuations and currency exchange fluctuations, it has entered into, and in the future may enter into for these or other purposes, financial swaps, or hedging arrangements, with various financial counterparties. In addition to any risks related to the counterparties, there can be no assurances that the Company’s hedging activity will be effective in insulating it from the risks associated with the underlying transactions, that the Company would not have been better off without entering into these hedges, or that the Company will not have to pay additional amounts upon settlement.
Item 1B.     UNRESOLVED STAFF COMMENTS

None.


44



Item 2.       PROPERTIES

The Company's corporate headquarters are located in Burlington, North Carolina, and include facilities that are both owned and leased.
LabCorp Diagnostics (LCD) operates through a network of patient service centers, branches, rapid response laboratories, primary laboratories, and specialty laboratories. The table below summarizes certain information as to LCD's principal operating and administrative facilities as of December 31, 2019.
Location
Nature of Occupancy
Primary Facilities:
 
Birmingham, Alabama
Leased
Phoenix, Arizona
Owned
Los Angeles, California
Leased
Monrovia, California
Leased
San Diego, California
Leased
San Francisco, California
Leased
Shelton, Connecticut
Leased
Tampa, Florida
Leased
Westborough, Massachusetts
Leased
St. Paul, Minnesota
Owned
Kansas City, Missouri
Owned
Raritan, New Jersey
Owned
Burlington, North Carolina (5)
Owned/Leased
Research Triangle Park, North Carolina (3)
Leased
Dublin, Ohio
Owned
Brentwood, Tennessee
Leased
Dallas, Texas
Leased
Houston, Texas
Leased
Herndon, Virginia
Leased
Seattle, Washington
Leased
Spokane, Washington (3)
Leased




























45



Covance Drug Development (CDD) operates on a global scale. The table below summarizes certain information as to CDD's principal operating and administrative facilities as of December 31, 2019.
Location
Nature of Occupancy
Primary Facilities:
 
Mechelen, Belgium
Leased
Beijing, China
Leased
Shanghai, China (3)
Owned/Leased
Muenster, Germany
Owned
Pune, India
Leased
Bangalore, India
Leased
Singapore
Leased
Geneva, Switzerland
Owned
Eye, United Kingdom
Owned
Harrogate, United Kingdom
Owned
Huntington, United Kingdom
Owned
Leeds, United Kingdom
Owned
Maidenhead, United Kingdom
Leased
Shardlow, United Kingdom
Owned
York, United Kingdom
Leased
San Francisco, California
Leased
Daytona Beach, Florida
Leased
Greenfield, Indiana
Owned
Indianapolis, Indiana
Leased
Gaithersburg, Maryland
Leased
Ann Arbor, Michigan
Leased
Minneapolis, Minnesota
Leased
Princeton, New Jersey
Leased
Somerset, New Jersey
Owned
Dallas, Texas
Leased
Chantilly, Virginia
Leased
Madison, Wisconsin
Owned
All of the Company’s primary laboratory and drug development facilities have been built or improved for the purpose of providing commercial laboratory testing or drug development services. The Company believes that these existing facilities and plans for expansion are suitable and adequate and will provide sufficient production capacity for the Company's currently foreseeable level of operations. The Company believes that if it were unable to renew a lease or if a lease were to be terminated on any of the facilities it presently leases, it could find alternate space at competitive market rates and readily relocate its operations to such new locations without material disruption to its operations.
Item 3.   
LEGAL PROCEEDINGS
See Note 16 Commitments and Contingencies to the Consolidated Financial Statements.
Item 4.   
MINE SAFETY DISCLOSURES

Not applicable.














46





PART II

Item 5.   
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information
The Company's common stock, par value $0.10 per share, or Common Stock, trades on the New York Stock Exchange or NYSE under the symbol “LH.” 
Holders
On February 26, 2020, there were approximately 1,038 holders of record of the Common Stock.
Transfer Agent
The transfer agent for the Company's Common Stock is American Stock Transfer & Trust Company, Shareholder Services, 6201 Fifteenth Avenue, Brooklyn, NY 11219, telephone: 800-937-5449, website: www.amstock.com.
Dividends
The Company has not historically paid dividends on its Common Stock and does not presently anticipate paying any dividends on its Common Stock in the foreseeable future.
Common Stock Performance
The graph below shows the cumulative total return assuming an investment of $100 on December 31, 2014, in each of the Company’s common stock, the Standard & Poor’s, or S&P Composite-500 Stock Index and the S&P 500 healthcare Index, or Peer Group, and assuming that all dividends were reinvested.
Comparison of Five Year Cumulative Total Return
 
12/2014
 
12/2015
 
12/2016
 
12/2017
 
12/2018
 
12/2019
Laboratory Corporation of America Holdings
$
100.00

 
$
114.59

 
$
118.98

 
$
147.83

 
$
117.11

 
$
156.78

S&P 500 Index
$
100.00

 
$
101.38

 
$
113.51

 
$
138.29

 
$
132.23

 
$
173.86

S&P 500 Health Care Index
$
100.00

 
$
106.89

 
$
104.01

 
$
126.98

 
$
135.19

 
$
163.34

https://cdn.kscope.io/d578ccc8cc5082f1d4b86ffcbb8f12ad-chart-d9b22842b3a157728f3.jpg


47



Issuer Purchases of Equity Securities (all amounts in millions, except per share amounts)
The following table sets forth information with respect to purchases of shares of the Company’s Common Stock made during the quarter ended December 31, 2019, by or on behalf of the Company:
 
Total Number of Shares Repurchased
 
Average Price Paid Per Share
 
Total Number of Shares Repurchased as Part of Publicly Announced Program
 
Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Program
October 1 - October 31
0.3

 
$
165.91

 
0.3

 
$
900.0

November 1 - November 30

 

 

 
900.0

December 1 - December 31

 

 

 
900.0

 
0.3

 
$
165.91

 
0.3

 
 
At the end of 2018, the Company had outstanding authorization from the board of directors to purchase up to $443.5 of Company common stock. On February 6, 2019, the board of directors replaced the Company’s existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion of the Company’s shares. The repurchase authorization has no expiration date. During 2019, the Company purchased 2.9 shares of its common stock at an average price of $154.94 for a total cost of $450.0, of which $100.0 was repurchased prior to the new plan in February 2019. At the end of 2019, the Company had outstanding authorization from the board of directors to purchase an additional $900.0 of Company common stock.
Item 6.
SELECTED FINANCIAL DATA (in millions, except per share amounts)
The selected financial data presented below under the captions “Statement of Operations Data” and “Balance Sheet Data” as of and for the five-year period ended December 31, 2019, are derived from consolidated financial statements of the Company, which have been audited by an independent registered public accounting firm.
                                                        
Years Ended December 31,
 
(a)
2019
 
(b)
2018
 
(c)
2017
 
(d)
2016
 
(e)
2015
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
11,554.8

 
$
11,333.4

 
$
10,308.0

 
$
9,552.9

 
$
8,505.7

Gross profit
3,252.5

 
3,176.4

 
3,091.8

 
2,854.0

 
2,903.3

Operating income (h)
1,330.2

 
1,325.7

 
1,305.2

 
1,270.6

 
996.8

Net earnings attributable to Laboratory
 

 
 

 
 

 
 

 
 

Corporation of America Holdings
823.8

 
883.7

 
1,227.1

 
711.8

 
437.6

Basic earnings per common share
$
8.42

 
$
8.71

 
$
11.99

 
$
6.94

 
$
4.43

Diluted earnings per common share
$
8.35

 
$
8.61

 
$
11.81

 
$
6.82

 
$
4.35

 
 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
97.9

 
101.4

 
102.4

 
102.5

 
98.8

Diluted weighted average common shares outstanding
98.6

 
102.6

 
103.9

 
104.3

 
100.6

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents and short-term investments
$
337.5

 
$
426.8

 
$
316.6

 
$
433.6

 
$
716.4

Goodwill and intangible assets, net (g)
11,899.5

 
11,271.4

 
11,567.0

 
9,824.9

 
9,526.6

Total assets (g) (f)
18,046.4

 
16,185.3

 
16,673.0

 
14,334.8

 
14,104.7

Long-term obligations (f)
7,107.6

 
6,059.8

 
6,762.1

 
5,849.5

 
6,364.2

Total shareholders' equity
7,567.0

 
6,971.4

 
6,804.1

 
5,518.2

 
4,945.1


(a)
During 2019, the Company recorded net restructuring charges of $54.6. The charges were comprised of $32.9 in severance and other personnel costs and $24.9 in facility-related costs primarily associated with facility closures and general integration initiatives. These charges were offset by the reversal of previously established reserves of $1.7 in unused severance and $1.5 in unused facility-related costs.
(b)
During 2018, the Company recorded net restructuring charges of $48.1. The charges were comprised of $40.3 in severance and other personnel costs and $11.8 in facility-related costs primarily associated with facility closures and general integration initiatives. These charges were offset by the reversal of previously established reserves of $2.0 in unused severance and $2.0 in unused facility-related costs.

48



(c)
During 2017, the Company recorded net restructuring charges of $70.9. The charges were comprised of $36.1 in severance and other personnel costs and $39.9 in facility-related costs primarily associated with facility closures and general integration initiatives. These charges were offset by the reversal of previously established reserves of $0.5 in unused severance and $4.6 in unused facility-related costs. The Company also recognized asset impairment losses of $23.5 related to the termination of software development projects within the Covance Drug Development (CDD) segment and the forgiveness of certain indebtedness for LabCorp Diagnostics (LCD) customers in areas heavily impacted by hurricanes during the third quarter.
(d)
During 2016, the Company recorded net restructuring charges of $58.4. The charges were comprised of $30.9 in severance and other personnel costs and $33.8 in facility-related costs primarily associated with facility closures and general integration initiatives. These charges were offset by the reversal of previously established reserves of $2.8 in unused severance and $3.5 in unused facility-related costs.
(e)
During 2015, the Company recorded net restructuring charges of $113.9. The charges were comprised of $59.2 in severance and other personnel costs and $55.8 in facility-related costs primarily associated with facility closures and general integration initiatives. These charges were offset by the reversal of previously established reserves of $1.1 in unused facility-related costs.
(f)
See Note 5 Leases and Note 12 Debt to the Consolidated Financial Statements.
(g)
During 2016, the Company revised the final purchase price allocation for Covance. As a result, an out of period adjustment of $25.6 was recorded to reduce goodwill and increase a deferred tax asset as of December 31, 2015. The Company concluded that the impact of this adjustment was not material to the current or prior periods.
(h)
Net earnings attributable to Laboratory Corporation of America Holdings in 2017 includes a provisional net benefit of $519.0 due to the Tax Cuts and Jobs Act (TCJA). For additional information on the TCJA, see Note 14 Income Taxes to the Consolidated Financial Statements.

Item 7.   
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in millions)
General
During the year ended December 31, 2019, the Company's revenue grew by 2.0%, driven by growth from acquisitions of 2.3% and organic growth of 1.6% (which includes the negative impact from PAMA of 0.9%), partially offset by the disposition of businesses of 1.4% and negative foreign currency translation of 0.5%.
The Company defines organic growth as the increase in revenue excluding revenue from acquisitions for the first twelve months after the close of each acquisition. 
On June 3, 2019, the Company's CDD segment completed the acquisition of Envigo's nonclinical contract research services business, expanding CDD's global nonclinical drug development capabilities with additional locations and resources. Additionally, the Company divested the Covance Research Products (CRP) business, which was a part of the CDD segment, to Envigo. As part of this sale, CDD entered into a multi-year, renewable supply agreement with Envigo. The Company paid cash consideration of $601.0, received a floating rate secured note of $110.0, and recorded a loss on the sale of CRP of $12.2. The Company funded the transaction through a new term loan facility. During the year ended December 31, 2019, the Company also acquired various other businesses and related assets for approximately $286.4 in cash (net of cash acquired).
The Company remains on track to deliver $150.0 of net savings from CDD's three-year LaunchPad initiative by the end of 2020. The Company expects phase II of LCD’s LaunchPad initiative to deliver approximately $200.0 in net savings by the end of 2021, while incurring approximately $40.0 in one-time implementation costs. Approximately one-third of the total savings are expected to be realized each year.
The Company is also exposed to risks related to information security arising from the information technology systems and operations of third parites, including thosse of the Company's vendors and partners. For example, on May 14, 2019, Retrieval-Masters Credit Bureau, Inc. d/b/a/ American Medical Collections Agency (AMCA), an external collection agency, notified the Company about a security incident AMCA experienced that may have involved certain personal information about some of the Company's patients (the AMCA Incident). The Company referred patient balances to AMCA only when direct collection efforts were unsuccessful. The Company's systems were not impacted by the AMCA Incident. Upon learning of the AMCA Incident, the Company promptly stopped sending new collection requests to AMCA and stopped AMCA from continuing to work on any pending collection requests on behalf of the Company. AMCA informed the Company that it appeared that an unauthorized user had access to AMCA's system between August 1, 2018 and March 30, 2019, and that AMCA could not rule out the possibility that personal

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information on AMCA's system was at risk during that time period. Information on AMCA's affected system from the Company may have included name, address, and balance information for the patient and person responsible for payment, along with the patient's phone number, date of birth, referring physician, and date of service. The Company was later informed by AMCA that health insurance information may have been included for some individuals, and because some insurance carriers utilize the Social Security Number as a subscriber identification number, the Social Security Number for some individuals may also have been affected. No ordered tests, laboratory test results, or diagnostic infonnation from the Company were in the AMCA affected system. The Company notified individuals for whom it had a valid mailing address. For the individuals whose Social Security Number was affected, the notice included an offer to enroll in credit monitoring and identity protection services that will be provided free of charge for 24 months. The Company has incurred, and expects to continue to incur, costs related to the AMCA Incident. In addition, the Company is involved in pending and threatened litigation related to the AMCA Incident, as well as various government and regulatory inquiries and processes. For additional information about the AMCA Incident, see Note 16 Commitments and Contingencies to the Consolidated Financial Statements.
PAMA, which went into effect on January 1, 2018, resulted in a net reduction of revenue of approximately $107.0 and $70.0 in 2019 and 2018, respectively from all payers affected by the Clinical Lab Fee Schedule. Unless further implementation of PAMA is delayed or changed, an additional reduction of approximately $90.0 is expected for 2020.
Effective January 1, 2019, the Company adopted Accounting Standards Codification (ASC) 842 Leases using the modified retrospective method. The Company elected the package of practical expedients, which includes not reassessing whether existing contracts contain leases under the new definition of a lease, reassessing the classification of existing leases, and reassessing whether previously capitalized initial direct costs qualify for capitalization under the new standard. The Company also elected not to separate lease and non-lease components. The adoption of this standard resulted in the recording of $778.1 of additional operating lease liabilities as of December 31, 2019.
Results of Operations
The following tables present the financial measures that management considers to be the most significant indicators of the Company's performance. For discussion of 2018 results and comparison with 2017 results refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Years ended December 31, 2019 and 2018
Revenues