Express Scripts 2012 Annual Report Download - page 24

Express Scripts 2012 Annual Report22
for 2011 did not renew their contracts with Medco for 2012 as a result of acquisitions by competitors or transitioning in the
normal course of business.
If one or more of our large clients either terminates or does not renew a contract for any reason or otherwise
renews a contract on terms that are less favorable to us, 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.
If we are not able to replace lost business by generating new sales with comparable operating margins or
successfully executing other corporate strategies, our revenues and results of operations could suffer. In addition, if certain
of our key clients are negatively impacted by business conditions or other economic trends, or if such clients otherwise fail
to successfully maintain or grow their business, our business and results of operations 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.
Certain of our subsidiaries have been approved to function as a Part-D prescription drug plan (“PDP”) sponsor for
the purpose of making employer/union-only group waiver plans available for eligible clients and Medco’s insurance
subsidiaries have been approved by CMS to participate in the Medicare Part D program as a national PDP sponsor that
provides direct services to Medicare Part D eligible members. 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 and
operations. 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 results of
operations.
Certain of our subsidiaries are subject to various contractual and regulatory compliance requirements associated
with participating in Medicare Part D. As insurers organized and licensed under applicable state laws, these subsidiaries are
subject to certain aspects of state laws regulating the business of insurance in all jurisdictions in which they offer PDP
services. As PDP sponsors, certain of our subsidiaries are 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 federal False Claims Act. If material contractual or regulatory non-compliance was to be identified, including,
for example, during CMS audits or client audits in cases where we service PDP sponsors, recoupment, 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 or
changes in the interpretation of existing regulatory requirements, in each case, 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 stop providing pharmacy
benefit coverage to retirees, instead allowing 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 cause a decline in our membership base. Further, Medco’s Part D
product offerings require premium payment from members for the ongoing benefit, as well as amounts due from CMS, and
as a result of the demographics of the calculations, as well as the potential magnitude and timing of settlement for amounts
due from CMS, these accounts receivable are subject to billing and realization risk in excess of what is experienced in the
core PBM business.
Like many aspects of our business, the administration of the Medicare Part D program is complex and any failure
to effectively 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.
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