Express Scripts 2011 Annual Report Download - page 27

Express Scripts 2011 Annual Report 25
A substantial portion of our revenue is concentrated in certain significant client contracts. Our failure to execute on, or
other issues arising under, the contracts could adversely affect our financial results. Further, conditions or trends
impacting certain of our key clients could result in a negative impact on our financial performance.
As described in greater detail in the discussion of our business in Item 1 above, we have long term contracts with
WellPoint, Inc. (―WellPoint‖) and the United States Department of Defense (―DoD‖). Our top 5 clients, including
WellPoint and DoD, collectively represented 56.7% and 55.2% of our revenue during 2011 and 2010, respectively. If one
or more of our large clients terminate or do not renew contracts for any reason, our financial results could be materially
adversely affected and we could experience a negative reaction in the investment community resulting in stock price
declines or other adverse effects.
Under our current agreement we are providing pharmacy benefit services to WellPoint through December 31,
2019. Our agreement with the DoD consists of an initial one-year contract and five one-year renewal options, with the final
option expiring on October 31, 2014.
In addition, if certain of our key clients are negatively impacted by business conditions or other trends, or if such
clients otherwise fail to successfully maintain or grow their business, our business and financial results could be adversely
impacted.
Regulatory or business changes relating to our participation in Medicare Part D, the loss of Medicare Part D eligible
members, or our failure to otherwise execute on our strategies related to Medicare Part D, may adversely impact our
business and our financial results.
Our subsidiary ESIC was approved to function as a Part-D PDP plan sponsor for purposes of making
employer/union-only group waiver plans available for eligible clients. We also provide other products and services in
support of our clients’ Medicare Part D plans or federal Retiree Drug Subsidy. We have made, and may be required to make
further, substantial investments in the personnel and technology necessary to administer our Medicare Part D strategy.
There are many uncertainties about the financial and regulatory risks of participating in the Medicare Part D program, and
we can give no assurance that these risks will not materially adversely impact our business and our financial results in
future periods.
We are subject to various contractual and regulatory compliance requirements associated with participating in
Medicare Part D. As an insurer organized and licensed under the laws of the State of Arizona, ESIC is subject to certain
aspects of state laws regulating the business of insurance in all jurisdictions in which ESIC offers its PDP. As a PDP
sponsor, ESIC is required to comply with certain federal Medicare Part D laws and regulations applicable to PDP sponsors.
Additionally, the receipt of federal funds made available through the Part D program by us, our affiliates, or clients is
subject to compliance with the Part D regulations and established laws and regulations governing the federal government’s
payment for healthcare goods and services, including the Anti-Kickback Laws and the False Claims Act. Similar to our
requirements with other clients, our policies and practices associated with operating our PDP are subject to audit. If
material contractual or regulatory non-compliance was to be identified, monetary penalties and/or applicable sanctions,
including suspension of enrollment and marketing or debarment from participation in Medicare programs, could be
imposed. Further, the adoption or promulgation of new or more complex regulatory requirements associated with Medicare
may require us to incur significant compliance-related costs which could adversely impact our business and our financial
results.
In addition, due to the availability of Medicare Part D, some of our employer clients may decide to stop providing
pharmacy benefit coverage to retirees, instead allowing the retirees to choose their own Part D plans, which could cause a
reduction in utilization for our services. Extensive competition among Medicare Part D plans could also result in the loss of
Medicare members by our managed care customers, which would also result in a decline in our membership base. Like
many aspects of our business, the administration of the Medicare Part D program is complex. Any failure to execute the
provisions of the Medicare Part D program may have an adverse effect on our financial position, results of operations or
cash flows. As discussed above, in March 2010, comprehensive healthcare reform was enacted into federal law through the
passage of the Health Reform Laws. Additionally, as described above, the Health Reform Laws contain various changes to
the Part D program and could have a financial impact on our PDP and our clients’ demand for our other Part D products
and services.