Express Scripts 2013 Annual Report Download - page 26

Express Scripts 2013 Annual Report 26
We operate dispensing pharmacies, call centers, data centers and corporate facilities that depend on the security and
stability of our technology infrastructure. Our technology infrastructure could be disrupted by any number of events including a
general failure of the technology, malfunction of business process or a disaster or other catastrophic event. In addition, our
vendor and supply chain is dependent on a number of different products and third parties and could be disrupted. Such
disruptions 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 or our failure to implement adequate business continuity and disaster recovery strategies could
have a material adverse effect on our business and results of operations.
A substantial portion of our business is concentrated in certain significant client contracts. Our failure to execute on or other
issues arising under, such contracts or conditions or trends impacting certain of our key clients could adversely affect our
business and results of operations.
As described in greater detail in the discussion of our business in Item 1 above (see “Part I — Item 1 — Business
— Clients”), 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 38.4% and 39.3% of our revenue during
2013 and 2012, respectively.
On July 21, 2011, Medco announced that its pharmacy benefit services agreement with UnitedHealth Group would
not be renewed, although Medco continued to provide services under an agreement, which expired on December 31, 2012. A
transition agreement was in place throughout 2013, during which time patients moved in tranches off of the Medco platform.
If one or more of our large clients either terminates or does not renew a contract for any reason or if the provisions
of a contract with a large client are modified, renewed or otherwise changed with 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 or margin 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 are acquired,
consolidated or otherwise fail to successfully maintain or grow their business, our business and results of operations could be
adversely impacted.
If significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy
networks, including the loss of or adverse change in our relationship with one or more key pharmacy providers, our business
and financial results could be impaired.
More than 68,000 retail pharmacies, which represent over 95% of all United States retail pharmacies, participated
in one or more of our networks at December 31, 2013. The ten largest retail pharmacy chains represent approximately 60% of
the total number of stores in our largest network. In certain geographic areas of the United States, our networks may be
comprised of higher concentrations of one or more large pharmacy chains. Contracts with retail pharmacies are generally non-
exclusive and are terminable on relatively short notice by either party. If one or more of the larger pharmacy chains terminates
its relationship with us, or is able to renegotiate terms that are substantially less favorable to us, our members’ access to retail
pharmacies and/or our business could be materially adversely affected. In addition, the entry of one or more large pharmacy
chains into the PBM business in addition to the current pharmacy chain competitors, or the consolidation of existing pharmacy
chains, could increase the likelihood of negative changes in our relationship with such pharmacies. Changes in the overall
composition of our pharmacy networks, or reduced pharmacy access under our networks, could have a negative impact on our
claims volume and/or our competitiveness in the marketplace, which could cause us to fall short of certain guarantees in our
contracts with clients or otherwise impair our business or results of operations.
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, could adversely impact our business
and our results of operations.
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 certain of our 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.