Invacare 2013 Annual Report Download - page 24

I-18
In many of the foreign countries in which the Company manufactures or markets its products, the Company is subject to
extensive medical device regulations that are similar to those of the FDA, including those in Europe. The regulation of the
Company’s products in Europe falls primarily within the European Economic Area, which consists of the 27 member states of the
European Union, as well as Iceland, Liechtenstein and Norway. Only medical devices that comply with certain conformity
requirements of the Medical Device Directive are allowed to be marketed within the European Economic Area. In addition, the
national health or social security organizations of certain foreign countries, including those outside Europe, require the Company’s
products to be qualified before they can be marketed in those countries. Failure to receive or delays in the receipt of, relevant
foreign qualifications in the European Economic Area or other foreign countries could have a material adverse effect on the
Company’s business.
Being in the health care industry, the Company is subject to extensive government regulation, and if the Company fails to
comply with applicable health care laws or regulations, the Company could suffer severe civil or criminal sanctions or be
required to make significant changes to the Company’s operations that could have a material adverse effect on the Company’s
results of operations.
The Company sells its products principally to medical equipment and home health care providers who resell or rent those
products to consumers. Many of those providers (the Company’s customers) are reimbursed for the Invacare products sold to their
customers and patients by third-party payors, including Medicare and Medicaid. The U.S. federal government and the governments
in the states and other countries in which the Company operates regulate many aspects of the Company’s business. As a part of
the health care industry, the Company is subject to extensive government regulation, including numerous laws directed at preventing
fraud and abuse and laws regulating reimbursement under various government programs. The marketing, invoicing, documenting
and other practices of health care suppliers and manufacturers are all subject to government scrutiny. Government agencies
periodically open investigations and obtain information from health care suppliers and manufacturers pursuant to the legal process.
Violations of law or regulations can result in severe administrative, civil and criminal penalties and sanctions, including
disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on the Company’s
business. While the Company has established numerous policies and procedures to address compliance with these laws and
regulations, there can be no assurance that the Company's efforts will be effective to prevent a material adverse effect on the
Company’s business from noncompliance issues. For example, as discussed in the preceding Risk Factors, the Company is subject
to a FDA consent decree affecting its corporate facility and Taylor Street manufacturing facility in Elyria, Ohio and received a
FDA warning letter related to its Sanford, Florida facility.
The Company received a subpoena in 2006 from the U.S. Department of Justice ("DOJ") seeking documents relating to
three long-standing and well-known promotional and rebate programs maintained by the Company. The Company believes that
the programs described in the subpoena are in compliance with all applicable laws and the Company has cooperated fully with
the government investigation. As of February 2014, the subpoena remains pending; although the last communication with the DOJ
was in 2007.
Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect
permissible activities, the costs associated with doing business, and reimbursement amounts paid by federal, state and other third-
party payors. The Company cannot predict the future of federal, state and local regulation or legislation, including Medicare and
Medicaid statutes and regulations, or possible changes in health care policies in any country in which the Company conducts
business. Future legislation and regulatory changes could have a material adverse effect on the Company’s business.
Changes in government and other third-party payor reimbursement levels and practices have negatively impacted and could
continue to negatively impact the Company’s revenues and profitability.
The Company’s products are sold primarily through a network of medical equipment and home health care providers,
extended care facilities, hospital and HMO-based stores and other providers. In addition, the Company sells directly to various
government providers throughout the world. Many of these providers (the Company’s customers) are reimbursed for the products
and services provided to their customers and patients by third-party payors, such as government programs, including Medicare
and Medicaid, private insurance plans and managed care programs. Most of these programs set maximum reimbursement levels
for some of the products sold by the Company in the United States and abroad. If third-party payors deny coverage, make the
reimbursement process or documentation requirements more uncertain or further reduce their current levels of reimbursement
(i.e., beyond the reductions described below), or if the Company’s costs of production do not decrease to keep pace with decreases
in reimbursement levels, the Company may be unable to sell the affected product(s) through its distribution channels on a profitable
basis.