Express Scripts 2011 Annual Report Download - page 29

Express Scripts 2011 Annual Report 27
could disrupt our business operations or impact patient safety, result in customer and member disputes, damage our
reputation, expose us to risk of loss, litigation or regulatory violations, increase administrative expenses or lead to other
adverse consequences.
We operate dispensing pharmacies, call centers, data centers and corporate facilities that depend on the security
and stability of technology infrastructure. Any service disruption at any of these facilities due to failure or disruption of
technology, malfunction of business process, disaster or catastrophic event could, temporarily or indefinitely, significantly
reduce, or partially or totally eliminate our ability to process and dispense prescriptions and provide products and services
to our clients and members. Any such service disruption at these facilities or to this infrastructure could have a material
adverse effect on our business operations and our financial results.
If we lose relationships with one or more key pharmaceutical manufacturers, or if the payments made or discounts
provided by pharmaceutical manufacturers decline, our business and financial results could be adversely affected.
We maintain contractual relationships with numerous pharmaceutical manufacturers that may provide us with,
among other things:
• discounts for drugs we purchase to be dispensed from our home delivery pharmacies
• rebates based upon distributions of drugs from our home delivery pharmacies and through pharmacies in our retail
networks
• administrative fees for managing rebate programs, including the development and maintenance of formularies which
include the particular manufacturer’s products
• access to limited distribution specialty pharmaceuticals
If several of these contractual relationships are terminated or materially altered by the pharmaceutical
manufacturers, our business and financial results could be materially adversely affected. In addition, formulary fee
programs have been the subject of debate in federal and state legislatures and various other public and governmental
forums. Changes in existing laws or regulations or in interpretations of existing laws or regulations or the adoption of new
laws or regulations relating to any of these programs may materially adversely affect our business.
Changes in industry pricing benchmarks could materially impact our financial performance.
Contracts in the prescription drug industry, including our contracts with retail pharmacy networks and with PBM
and specialty pharmacy clients, generally use ―average wholesale price‖ or ―AWP‖, which is published by a third party, as
a benchmark to establish pricing for prescription drugs. In 2011, First DataBank, a significant provider of AWP
information, discontinued publishing such information. This and other recent events have raised uncertainties as to whether
certain third parties will continue to publish AWP, which may result in the inability of payors, pharmacy providers, PBMs
and others in the prescription drug industry to continue to utilize AWP as it has previously been calculated. In the event that
AWP is no longer published or if we adopt other pricing benchmarks for establishing prices within the industry, we can
give no assurance that the short or long-term impact of such changes to industry pricing benchmarks will not have a
material adverse effect on our business and financial results in future periods.
Legislation and other regulations affecting drug prices are discussed in more detail under ―Part I — Item 1 —
Business — Government Regulation and Compliance – Legislation and Regulation Affecting Drug Prices‖ above.
Pending and future litigation or other proceedings could subject us to significant monetary damages or penalties and/or
require us to change our business practices, either of which could have a material adverse effect on our business
operations and our financial results or condition.
We are subject to risks relating to litigation, regulatory proceedings, and other similar actions in connection with
our business operations, including the dispensing of pharmaceutical products by our home delivery pharmacies, services
rendered in connection with our disease management offering, and our pharmaceutical services operations. A list of the
significant proceedings pending against us is included under ―Part I — Item 3—Legal Proceedings,‖ including certain
proceedings that purport to be class action lawsuits. These proceedings seek unspecified monetary damages and/or
injunctive relief. While we believe these proceedings are without merit and intend to contest them vigorously, we cannot
predict with certainty the outcome of any such proceeding. If one or more of these proceedings has an unfavorable
outcome, we cannot provide any assurance that it would not have a material adverse effect on our business and financial
results, including our ability to attract and retain clients as a result of the negative reputational impact of such an outcome.
Further, while certain costs are covered by insurance, we may incur uninsured costs that are material to our financial
performance in the defense of such proceedings.