Cardinal Health 2011 Annual Report Download - page 36

W
e
h
ave a
f
ew
l
arge customers t
h
at generate a signi
f
icant amount o
f
our revenue
.
A
s
d
escr
ib
e
di
n greater
d
eta
il i
nt
h
e
di
scuss
i
on o
f
our
b
us
i
ness
i
n Item 1 a
b
ove, our sa
l
es an
d
cre
di
t
concentration is si
g
nificant. For example, Wal
g
reens and CVS accounted for approximatel
y
23 percent and
22 percent, respect
i
ve
l
y, o
f
our revenue
f
or
fi
sca
l
2011. T
h
e aggregate o
f
our
fi
ve
l
argest customers,
i
nc
l
u
di
n
g
Walgreens and CVS, accounted for approximately 59 percent of our revenue for fiscal 2011. In addition,
Wal
g
reens and CVS accounted for 31 percent and 20 percent, respectivel
y
, of our
g
ross trade receivable balance
a
t June 30, 2011. I
f
one or more o
f
our
l
arge customers
d
e
f
au
l
t
i
n payment, term
i
nate or
d
o not renew contracts,
o
rs
i
gn
ifi
cant
l
yre
d
uce t
h
e
i
r purc
h
ases o
f
our pro
d
ucts, our resu
l
ts o
f
operat
i
ons an
dfi
nanc
i
a
l
con
di
t
i
on cou
ld
suffer
.
The United States healthcare environment is changing in many ways, some of which may not be favorable to
us, inc
l
u
d
ing c
h
anges resu
l
ting
f
rom
f
e
d
era
lh
ea
l
t
h
care
l
egis
l
ation.
Th
e
h
ea
l
t
h
care
i
n
d
ustry cont
i
nues to un
d
ergo s
i
gn
ifi
cant c
h
anges
d
es
i
gne
d
to
i
ncrease access to me
di
ca
l
care, improve safet
y
and contain costs. Medicare and Medicaid reimbursement levels have declined; the use of
managed care has increased; distributors, manufacturers, healthcare providers and pharmacy chains hav
e
conso
lid
ate
d
;an
dl
arge purc
h
as
i
ng groups are more preva
l
ent
.
I
n Marc
h
2010
,
t
h
e Pat
i
ent Protect
i
on an
d
A
ff
or
d
a
bl
e Care Act an
d
t
h
e Hea
l
t
h
Care an
d
E
d
ucat
i
on
R
econciliation Act (collectivel
y
the “Healthcare Reform Acts”) were enacted. Amon
g
other thin
g
s, the
H
ea
l
t
h
care Re
f
orm Acts see
k
to expan
dh
ea
l
t
hi
nsurance coverage to approx
i
mate
l
y32m
illi
on un
i
nsure
d
Amer
i
cans. Man
y
o
f
t
h
es
ig
n
ifi
cant c
h
an
g
es
i
nt
h
e Hea
l
t
h
care Re
f
orm Acts
d
o not ta
k
ee
ff
ect unt
il
2014,
includin
g
a requirement that most Americans carr
y
health insurance. We expect expansion of access to health
i
nsurance to
i
ncrease t
h
e
d
eman
df
or our pro
d
ucts an
d
serv
i
ces,
b
ut ot
h
er prov
i
s
i
ons o
f
t
h
e Hea
l
t
h
care Re
f
or
m
Acts cou
ld
a
ff
ect us a
d
verse
ly
.T
h
e Hea
l
t
h
care Re
f
orm Acts conta
i
n man
y
prov
i
s
i
ons
d
es
ig
ne
d
to
g
enerate t
h
e
revenues necessar
y
to fund the covera
g
e expansions and to reduce costs of Medicare and Medicaid. Be
g
innin
g
in
2013, eac
h
me
di
ca
ld
ev
i
ce manu
f
acturer w
ill h
ave to pay a tax
i
n an amount equa
l
to 2.3 percent o
f
t
h
epr
i
ce
f
or
w
hi
c
h
t
h
e manu
f
acturer se
ll
s
i
ts me
di
ca
ld
ev
i
ces. We manu
f
acture an
d
se
ll d
ev
i
ces t
h
at w
ill b
esu
bj
ect to t
hi
s tax
.
Additionall
y
, the Healthcare Reform Acts chan
g
ed the federal upper pa
y
ment limit for Medicaid reimbursemen
t
to no less than 175 percent of the average weighted manufacturer’s price from 250 percent of the lowest average
manu
f
acturer’s pr
i
ce
f
or
g
ener
i
cp
h
armaceut
i
ca
l
s. We cou
ld b
ea
d
verse
ly
a
ff
ecte
dby
, amon
g
ot
h
er t
hi
n
g
s,
chan
g
es in the deliver
y
or pricin
g
of or reimbursement for pharmaceuticals, medical devices or healthcar
e
serv
i
ces.
O
ur
b
usiness re
q
uires consistent,
d
i
l
igent an
d
rigorous com
pl
iance wit
h
regu
l
ator
y
an
dl
icensin
g
re
q
u
i
rements
.
T
he healthcare industr
y
is hi
g
hl
y
re
g
ulated. As described above in
g
reater detail in the discussion of our
business in Item 1, we are subject to regulation in the United States at both the federal and state level and in
f
ore
i
gn countr
i
es. In a
ddi
t
i
on, t
h
eUn
i
te
d
States
f
e
d
era
l
government an
d
state governments are
d
evot
i
ng greater
resources to the enforcement of these laws. If we fail to compl
y
with these re
g
ulator
y
requirements, or i
f
a
llegations are made that we fail to comply, our results of operations and financial condition could suffer.
•To
l
aw
f
u
lly
operate our
b
us
i
nesses, we are requ
i
re
d
to
h
o
ld
perm
i
ts,
li
censes an
d
ot
h
er re
g
u
l
ator
y
approvals from, and to compl
y
with operatin
g
and securit
y
standards of,
g
overnmental bodies. Failure
t
oma
i
nta
i
n or renew, or o
b
ta
i
nw
i
t
h
out s
i
gn
ifi
cant
d
e
l
ay, necessary perm
i
ts,
li
censes or approva
l
s, or t
o
c
omp
ly
w
i
t
h
requ
i
re
d
stan
d
ar
d
s, cou
ld h
ave an a
d
verse e
ff
ect on our resu
l
ts o
f
operat
i
ons an
dfi
nanc
i
a
l
c
ondition
.
• Pro
d
ucts t
h
at we manu
f
acture, source,
di
str
ib
ute or mar
k
et are requ
i
re
d
to comp
l
yw
i
t
h
regu
l
ator
y
r
e
q
uirements. Noncom
p
liance or concerns over noncom
p
liance could result in
p
roduct corrective
actions, recalls or seizures, warnin
g
letters, monetar
y
sanctions, in
j
unctions to halt manufacture and
di
str
ib
ut
i
on, c
i
v
il
or cr
i
m
i
na
l
sanct
i
ons, governmenta
l
re
f
usa
l
to grant approva
l
s, restr
i
ct
i
ons on
10