Henry Schein 2013 Annual Report Download - page 47

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Government
Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we
are subject to extensive local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Additionally, government and private insurance programs
fund a large portion of the total cost of medical care, and there has been an emphasis on efforts to control medical
costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical devices, and/or
medical treatments or services. Also, many of these laws and regulations are subject to change and may impact our
financial performance.
Health Care Reform
For example, 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, increased
federal oversight of private health insurance plans and included a number of provisions designed to reduce
Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to
increased health coverage. The Health Care Reform Law requirements include a 2.3% excise tax on domestic sales
of many medical devices by manufacturers and importers beginning in 2013 and a fee on branded prescription
drugs and biologics that was implemented in 2011, both of which may affect sales. On June 28, 2012, the United
States Supreme Court upheld as constitutional a key provision in the Health Care Reform Law, often referred to as
the “individual mandate,” which will require most individuals to have health insurance in 2014, or pay a penalty.
However, the decision also invalidated a provision in the Health Care Reform Law requiring states in 2014 to
expand their Medicaid programs or risk the complete loss of all federal Medicaid funding. The Court held that the
federal government may offer states the option of accepting the expansion requirement, but that it may not take
away pre-existing Medicaid funds in order to coerce states into complying with the expansion. Almost half the
states have not yet accepted the Medicaid expansion, so the full extent of increased health care coverage under the
Health Care Reform Law is uncertain. Adding to this uncertainty, in responding to difficulties encountered in
implementing Health Care Reform, the White House and federal agencies have instituted various temporary
implementation delays, such as regarding the “employer mandate” that generally requires employers with 50 or
more full time employees to provide certain health insurance to those employees or pay specified fines.
A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, has imposed new reporting and disclosure requirements for drug and device manufacturers with
regard to payments or other transfers of value made to certain practitioners (including physicians, dentists and
teaching hospitals), and for such manufacturers and for group purchasing organizations, with regard to certain
ownership interests held by physicians in the reporting entity. On February 1, 2013, CMS released the final rule to
implement the Physician Payment Sunshine Act. Under this rule, data collection activities began on August 1,
2013, and first disclosure reports are due by March 31, 2014 for the period August 1, 2013 through December 31,
2013. As required under the Physician Payment Sunshine Act, CMS will publish information from these reports on
a publicly available website, including amounts transferred and physician, dentist and teaching hospital identities,
which according to CMS will be available to the public by September 30, 2014.
The final rule implementing the Physician Payment Sunshine Act is complex, ambiguous and broad in scope.
CMS commentary on the final rule and more recent CMS communications indicate that wholesale drug and device
distributors which take title to such products are to be treated as “applicable manufacturers” subject to full reporting
requirements. In addition, certain of our subsidiaries manufacture drugs and devices. Accordingly, we will be
required to collect and report detailed information regarding certain financial relationships we have with physicians,
dentists and teaching hospitals. It is difficult to predict how the new requirements may impact existing
relationships among manufacturers, distributors, physicians, dentists and teaching hospitals. The Physician Payment
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may be required to continue to
report under certain of such state laws. While we expect to have substantially compliant programs and controls in
place to comply with the Physician Payment Sunshine Act requirements, our compliance with the new final rule
imposes additional costs on us.