Henry Schein 2012 Annual Report Download - page 21
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Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In recent years, some states have passed or proposed laws and
regulations that are intended to protect the integrity of the medical supply channel. For example, Florida and
certain other states have implemented or are implementing drug pedigree requirements that require that prescription
drugs be distributed with records or information documenting the prior distribution of the drug, from distributors
and potentially back to the manufacturers. California has enacted a law requiring the implementation of an
electronic drug pedigree system that provides track and trace chain of custody technologies, such as radio frequency
identification, or RFID, technologies. The law will take effect on a staggered basis, commencing on January 1,
2015 for pharmaceutical manufacturers, and July 1, 2016 for pharmaceutical wholesalers and repackagers. There
have been increasing efforts by various levels of government to regulate the pharmaceutical distribution system in
order to prevent the introduction of counterfeit, adulterated or misbranded pharmaceuticals into the distribution
system.
At the federal level, the FDC Act requires certain wholesalers to provide a drug pedigree for each wholesale
distribution of prescription drugs which includes an identifying statement that records the chain of ownership of a
prescription drug. Currently, the United States Food and Drug Administration, in the exercise of its enforcement
discretion, requires these wholesalers to maintain drug pedigrees that include transaction dates, names and
addresses regarding transactions going back to either the manufacturer or the last authorized distributor of record
that handled the drugs.
The FDC Act also requires the United States Food and Drug Administration to establish standards and identify
and validate effective technologies for the purpose of securing the pharmaceutical supply chain against counterfeit
drugs. These standards include any track and trace or authentication technologies, such as RFID and other
technologies. The United States Food and Drug Administration has continued to develop its policies in this area,
such as issuing a Final Guidance in 2010 regarding standardized numerical identification for prescription drug
packages, and issuing a proposed rule in July 2012 for a unique medical device identification system.
Certain of our businesses also maintain contracts with governmental agencies and are subject to certain
regulatory requirements specific to government contractors.
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws and regulations with respect to their operations. Some of these laws-referred to as
“false claims laws”- prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws”, prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items
or services that are paid for by federal, state and other health care payers and programs.
The fraud and abuse laws and regulations have been subject to varying interpretations, as well as heightened
enforcement activity over the past few years, and significant enforcement activity has been the result of “relators,”
who serve as whistleblowers by filing complaints in the name of the United States (and if applicable, particular
states) under federal and state false claims laws. Under the federal False Claims Act relators can be entitled to
receive up to 30% of total recoveries. Also, violations of the federal False Claims Act can result in treble damages,
and each false claim submitted can be subject to a penalty of up to $11,000 per claim. The Health Care Reform
Law significantly strengthened the federal False Claims Act and the anti-kickback law provisions, which could lead
to the possibility of increased whistleblower or relator suits, and among other things made clear that a federal anti-
kickback law violation can be a basis for federal False Claims Act liability.
The government has expressed concerns about financial relationships between suppliers on the one hand and
physicians and dentists on the other. As a result, we regularly review and revise our marketing practices as
necessary to facilitate compliance. We are now engaged in discussions with the government that may lead to
changes in certain of our marketing practices and, potentially, payments which we do not expect to be material. In
addition, under the reporting and disclosure obligations of the Physician Payment Sunshine Act provisions of the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each
enacted in March 2010, generally known as the “Health Care Reform Law” (discussed in more detail in Health
Care Reform, below), by the second quarter of 2014, the general public and government officials will be provided
with new access to detailed information with regard to payments or other transfers of value to certain practitioners