Cardinal Health 2015 Annual Report Download - page 63

Notes to Financial Statements
Cardinal Health | Fiscal 2015 Form 10-K 62
or state governments, that allege that false claims have been
submitted or have been caused to be submitted for payment by the
government. After a private party has filed a qui tam action, the
government must investigate the private party's claim and determine
whether to intervene in and take control over the litigation. These
actions may remain under seal while the government makes this
determination. If the government declines to intervene, the private
party may nonetheless continue to pursue the litigation on his or her
own on behalf of the government.
From time to time, we receive subpoenas or requests for information
from various government agencies relating to our business or to the
business of a customer, supplier or other industry participant. Most
of these matters are resolved without incident; however, such
subpoenas or requests can lead to the assertion of claims, or the
commencement of legal proceedings, against us.
In addition, we occasionally may suspect that products we
manufacture, market or distribute do not meet product specifications,
published standards or regulatory requirements. In such
circumstances, we investigate and take appropriate corrective action.
Such actions can lead to product recalls, costs to repair or replace
affected products, temporary interruptions in product sales and
action by regulators.
We accrue for contingencies related to disputes, litigation and
regulatory matters if it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated. Because
these matters are inherently unpredictable and unfavorable
developments or resolutions can occur, assessing contingencies is
highly subjective and requires judgments about future events. We
regularly review contingencies to determine whether our accruals
and related disclosures are adequate. The amount of ultimate loss
may differ from these estimates.
With respect to the unresolved matters described below, we are
unable to estimate a range of reasonably possible loss for matters
for which there is no accrual, or additional loss for matters for which
we have recorded an accrual, since damages or fines have not been
specified or the proceedings are at stages where significant
uncertainty exists as to legal or factual issues and as to whether such
matters will proceed to trial. We do not believe, based on currently
available information, that the outcomes of these matters will have
a material adverse effect on our financial position, results of
operations or cash flows, though the outcome of one or more of these
matters could be material to our results of operations for a particular
period.
We recognize income from the favorable outcome of litigation when
we receive the associated cash or assets.
We recognize estimated loss contingencies for litigation and
regulatory matters and income from favorable resolution of litigation
in litigation (recoveries)/charges, net in our consolidated statements
of earnings.
DEA Investigation and Related Matters
In February 2012, the U.S. Drug Enforcement Administration (the
"DEA") issued an order to show cause and immediate suspension
of our Lakeland, Florida distribution center's registration to distribute
controlled substances, asserting that we failed to maintain required
controls against the diversion of controlled substances. In May 2012,
we entered into a settlement agreement with the DEA that resolved
the administrative aspects of the DEA's action but did not resolve
potential liability for civil fines in Florida or elsewhere for the conduct
covered by the settlement agreement. In that regard, we are
continuing to engage in discussions with several offices of the U.S.
Department of Justice (the "DOJ"), including discussions regarding
a possible settlement. We incurred litigation charges of $41 million
for this matter during fiscal 2015. Our total accrual for this matter at
June 30, 2015 is $41 million, which is included in other accrued
liabilities in the consolidated balance sheet.
State of West Virginia vs. Cardinal Health, Inc.
In June 2012, the West Virginia Attorney General filed complaints,
which have been amended, against 13 pharmaceutical wholesale
distributors, including us and Harvard Drug, which we acquired on
July 2, 2015, as described in Note 2, in the Circuit Court of Boone
County, West Virginia alleging, among other things, that the
distributors failed to maintain effective controls to guard against
diversion of controlled substances in West Virginia, failed to report
suspicious orders of controlled substances in accordance with the
West Virginia Uniform Controlled Substances Act and were negligent
in distributing controlled substances to pharmacies that serve
individuals who abuse controlled substances. In addition to injunctive
and other equitable relief, the complaints seek monetary damages
and the creation of a court-supervised fund, to be financed by the
defendants in these actions, for a medical monitoring program
focused on prescription drug abuse. We are vigorously defending
ourselves in this matter.
FTC Investigation
As previously disclosed, the Federal Trade Commission (“FTC”)
investigated supplier arrangements involving our Nuclear Pharmacy
Services division during the period between 2003 and 2008. In April
2015, we settled this matter, without admitting liability, by agreeing
to a court order and injunction under federal antitrust laws. We
agreed, among other things, to pay $27 million to the FTC, which the
FTC has stated will be used to establish a fund for allegedly aggrieved
third parties. We incurred a litigation charge in the settlement amount
during fiscal 2015. On April 23, 2015, the United States District Court
for the Southern District of New York approved the settlement and
entered the order and injunction resolving the matter.
Qui Tam Action
Our Cardinal Health at Home division was named as a defendant by
a private third-party plaintiff in an amended qui tam complaint that
was filed in November 2014 in the U.S. District Court for the District
of Massachusetts against several manufacturers and distributors of
ostomy and continence care products. The complaint, which was
subsequently amended again in June 2015, sought damages and
penalties on behalf of the United States for alleged violations of the
federal healthcare fraud and abuse laws, Medicare regulations and
the federal False Claims Act in connection with the marketing and
sale of these products. Following an investigation, in July 2015, the