Cardinal Health 2009 Annual Report Download - page 34

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published standards, such as those issued by the International Standards Organization, or regulatory
requirements. When a quality or regulatory issue is identified by the Company, it investigates the issue and takes
appropriate corrective action, such as withdrawal of the product from the market, correction of the product at the
customer location, notice to the customer of revised labeling and other actions.
Prescription Drug Pedigree Tracking
There have been increasing efforts by various levels of government agencies, including state boards of
pharmacy and comparable government agencies, to regulate the pharmaceutical supply chain in order to prevent
the introduction of counterfeit, diverted, adulterated or mislabeled pharmaceuticals into the supply chain. To
date, 28 states have adopted some form of pedigree tracking requirements, 15 of which currently require
prescription drug pedigrees in certain situations.
Federal regulations requiring pedigree and chain of custody tracking in certain circumstances were adopted
under the federal Prescription Drug Marketing Act effective December 1, 2006. A preliminary injunction was
issued by a federal district court, however, against implementation of some of these federal regulations. The
injunction was affirmed by a federal appellate court on July 10, 2008. If the injunction is lifted, the additional
regulatory requirements could increase the overall regulatory burden and costs associated with the Company’s
pharmaceutical supply chain business, and could adversely affect the Company’s results of operations and
financial condition.
In addition, the Federal Drug Administration Amendments Act of 2007, which went into effect on
October 1, 2007, requires the FDA to establish standards for identification, validation, authentication, and
tracking and tracing of prescription drugs and to identify and validate effective technologies for the purpose of
securing the pharmaceutical supply chain against counterfeit drugs. The FDA must develop a standardized
numerical identifier by April 1, 2010.
On December 26, 2006, the Company entered into a civil settlement to resolve a civil investigation by the
New York Attorney General’s Office focusing on sales and purchases of prescription pharmaceuticals in the
secondary market. The Company has voluntarily undertaken and implemented a number of business reforms
within its pharmaceutical supply chain business as required by the settlement, including requirements that
wholesale customers certify their compliance with wholesaler safe product practices established by the Company.
In connection with the settlement, the Company agreed to conduct annual agreed-upon procedures testing in
2007, 2008 and 2009 to assess its compliance with the procedures outlined in the settlement.
Healthcare Fraud and Abuse Laws
The Company is also subject to extensive and frequently changing laws and regulations relating to
healthcare fraud and abuse. The federal government continues to scrutinize potentially fraudulent practices
affecting Medicare, Medicaid and other government healthcare programs. Furthermore, the Company’s activities
as a pharmaceutical and medical device manufacturer and distributor, and its relationships with other
pharmaceutical and medical-surgical product manufacturers and healthcare providers subject its business to laws
and regulations on healthcare fraud and abuse, which, among other things, generally prohibit the Company from
soliciting, offering, receiving or paying any remuneration in order to induce the ordering or purchasing of items
or services that are in any way paid for by Medicare, Medicaid or other government-sponsored healthcare
programs, or submitting or causing to be submitted any fraudulent claim for payment by the federal government.
Certain of the Company’s subsidiaries also maintain contracts with the federal government and are subject to
certain regulatory requirements relating to government contractors.
Many of the regulations applicable to the Company relating to healthcare fraud and abuse are vague or
indefinite and may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that
could require the Company to make changes in its operations. If the Company fails to comply with applicable
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