Henry Schein 2013 Annual Report Download - page 23

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Failure to comply with these laws can result in substantial penalties and other liabilities. As a result of the federal
Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), which was passed in
2009, some of our businesses that were previously only indirectly subject to federal Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) privacy and security rules became directly subject to such rules
because such businesses serve as “business associates” of HIPAA covered entities, such as health care providers.
On January 17, 2013 the Office for Civil Rights of the Department of Health and Human Services released a final
rule implementing the HITECH Act and making certain other changes to HIPAA privacy and security
requirements. Compliance with the rule was required by September 23, 2013, and increases the requirements
applicable to some of our businesses.
In addition, federal initiatives, including in particular the HITECH Act, are providing a program of incentive
payments available to certain health care providers involving the adoption and use of certain electronic health care
records systems and processes. The HITECH initiative includes providing, among others, physicians and dentists,
with financial incentives, if they meaningfully use certified electronic health record technology (“EHR”). Also,
eligible providers that fail to adopt certified EHR systems may be subject to Medicare reimbursement reductions
beginning in 2015. Qualification for the incentive payments requires the use of EHRs that are certified as having
certain capabilities for meaningful use pursuant to standards adopted by the Department of Health and Human
Services. Initial (“stage one”) standards addressed criteria for periods beginning in 2011. CMS had also issued a
final rule with more demanding “stage two” criteria for periods beginning in 2014 for eligible health professionals
(including physicians and dentists). CMS has indicated that it will delay rulemaking on more rigorous “stage three”
criteria until 2014, and has stated that it will delay implementation of stage three measures until 2017. Certain of
our businesses involve the manufacture and sale of certified EHR systems and other products linked to incentive
programs, and so must maintain compliance with these evolving governmental criteria.
Also, HIPAA requires certain health care providers, such as physicians, to use certain transaction and code set
rules for specified electronic transactions, such as transactions involving claims submissions. Commencing July 1,
2012, CMS required that, electronic claim submissions and related electronic transactions be conducted under a
new HIPAA transaction standard, called Version 5010. CMS has required this upgrade in connection with another
new requirement applicable to the industry, the implementation of new diagnostic code sets to be used in claims
submission. The new diagnostic code sets are called the ICD-10-CM. They were originally to be implemented on
October 1, 2013, but CMS issued a final rule that extended the implementation date until October 1, 2014. Certain
of our businesses provide electronic practice management products that must meet those requirements, and while
we believe we are prepared to timely adopt the new standards, it is possible that the transition to these new
standards, particularly the transition to ICD-10-CM, may result in a degree of disruption and confusion, thus
potentially increasing the costs associated with supporting this product.
International Transactions
In addition, United States and international import and export laws and regulations require us to abide by
certain standards relating to the importation and exportation of products. We also are subject to certain laws and
regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act and
anti-bribery laws and laws pertaining to the accuracy of our internal books and records, as well as other types of
requirements similar to those imposed in the United States.
While we believe that we are substantially compliant with the foregoing laws and regulations promulgated
thereunder and possess all material permits and licenses required for the conduct of our business, there can be no
assurance that regulations that impact our business or customers’ practices will not have a material adverse impact
on our business. As a result of political, economic and regulatory influences, the health care distribution industry in
the United States is under intense scrutiny and subject to fundamental changes. We cannot predict what further
reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.
See “ITEM 1A. Risk Factors” for a discussion of additional burdens, risks and regulatory developments that
may affect our results of operations and financial condition.
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