Quest Diagnostics Falls on Pricing Rumor

But the company denies any similarity to Tenet Healthcare.
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Shares of

Quest Diagnostics

(DGX) - Get Report

slid 3% Wednesday on rumors the company used aggressive pricing tactics similar to those reported at

Tenet Healthcare

(THC) - Get Report

. But the company quickly refuted the rumor, noting that significant differences exist between the two firms' Medicare reimbursement programs.

Quest shares fell almost 3%, or $1.75, to 58.25 Wednesday, having fallen more than 5% earlier in the day.

"We are not aware of any billing issues with Medicare or anyone else," said Quest spokesman Gary Samuels, echoing comments made from CEO Kenneth Freeman during a Webcast.

Tenet, which operates hospitals and medical centers, is reimbursed under Part A of the Medicare code while Quest, a clinical lab, is reimbursed under Part B, Samuels said. This means that Quest is reimbursed only for specific medical or psychiatric procedures performed by physicians.

The firm is reimbursed on a set fee schedule and bills only for tests that have been ordered by a physician. "There are no outlier payments," Samuels said.

Medicare outlier payments are made by the government to hospitals to cover the costs of particularly expensive medical procedures. Companies that receive these reimbursements have come under intense scrutiny since Tenet disclosed last week that it had increased its share of outlier payments by using aggressive pricing strategies. Outlier payments added 5% to Tenet's total revenue for the fiscal year ended in May.

Tenet, which has seen its stock plunge almost 70% over the past two weeks, is now being audited by the government for the way it handles procedures that require reimbursement above what Medicare generally covers.

Angela Samfilippo, an analyst at US Bancorp Piper Jaffray, said the Quest rumors were unfounded and noted that the company had already been investigated by the government in the 1990s for its billing practices. She believes any issues the company may have had at one time are now behind it.

"We've developed a close working relationship with the people that run the Medicare program," Quest spokesman Samuels added. "Our compliance program has acted as a model for the industry."