Henry Schein 2014 Annual Report Download - page 37

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The Health Care Reform Law contains many provisions designed to generate the revenues necessary to fund
the coverage expansions and to reduce costs of Medicare and Medicaid, including imposing a 2.3% excise tax on
domestic sales of many medical devices by manufacturers and importers that began in 2013, and a fee on branded
prescription drugs and biologics that was implemented in 2011, both of which may adversely affect sales and cost
of goods sold.
The implementation of the reporting and disclosure obligations of the Physician Payment Sunshine Act
provisions of the Health Care Reform Law could adversely affect our business.
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 we timely filed our first disclosure reports on June 30, 2014 for the period August 1, 2013 through
December 31, 2013. As required under the Physician Payment Sunshine Act, CMS published information from
these reports on a publicly available website, including amounts transferred and physician, dentist and teaching
hospital identities on 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 are 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
preempts similar state reporting laws, although we or our subsidiaries may be required to continue to report under
certain of such state laws in addition to Physician Payment Sunshine Act reporting, and some of these state laws are
also ambiguous. We are also subject to foreign regulations requiring transparency of certain interactions between
suppliers and their customers. While we believe we have substantially compliant programs and controls in place to
comply with the Physician Payment Sunshine Act requirements (and similar foreign requirements), our compliance
with the new final rule (and similar foreign requirements) imposes additional costs on us.
Failure to comply with existing and future regulatory requirements could adversely affect our business.
Our business is subject to requirements under various local, state, federal and international laws and regulations
applicable to the distribution of pharmaceuticals and medical devices, and human cells, tissue and cellular and
tissue-based products, also known as HCT/P products, and animal feed and supplements. Among the federal laws
with which we must comply are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as
amended, and Section 361 of the Public Health Services Act. Among other things, such laws, and the regulations
promulgated thereunder:
• regulate the storage and distribution, labeling, packaging, handling, reporting, record keeping,
introduction, manufacturing and marketing of drugs, HCT/P products and medical devices;
• subject us to inspection by the FDA and the DEA;
• regulate the storage, transportation and disposal of certain of our products that are considered
hazardous materials;
• require us to advertise and promote our drugs and devices in accordance with applicable FDA
requirements;
• require registration with the FDA and the DEA and various state agencies;
• require record keeping and documentation of transactions involving drug products;
• require us to design and operate a system to identify and report suspicious orders of controlled
substances to the DEA;