McKesson 2009 Annual Report Download - page 59

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
53
International Sourcing: We may experience difficulties and delays inherent in sourcing products and contract
manufacturing from foreign countries, including, but not limited to, (1) difficulties in complying with the
requirements of applicable federal, state and local governmental authorities in the United States and of foreign
regulatory authorities, (2) inability to increase production capacity commensurate with demand or the failure to
predict market demand and (3) other manufacturing or distribution problems including changes in types of products
produced, limits to manufacturing capacity due to regulatory requirements or physical limitations that could impact
continuous supply. Manufacturing difficulties could result in manufacturing shutdowns, product shortages and
delays in product manufacturing.
Pedigree Tracking: There have been increasing efforts by various levels of government agencies, including
state boards of pharmacy and comparable government agencies, to regulate the pharmaceutical distribution system
in order to prevent the introduction of counterfeit, adulterated and/or mislabeled drugs into the pharmaceutical
distribution system (“pedigree tracking”). Certain states have adopted or are considering laws and regulations that
are intended to protect the integrity of the pharmaceutical distribution system while other government agencies are
currently evaluating their recommendations. Florida has adopted pedigree tracking requirements and California has
enacted a law requiring chain of custody technology using radio frequency tagging and electronic pedigrees, which
will be effective for us in July 2016. Final regulations under the federal Prescription Drug Marketing Act requiring
pedigree and chain of custody tracking in certain circumstances became effective December 1, 2006. This latter
regulation has been challenged in a case brought by secondary distributors. A preliminary injunction was issued by
the United States District Court for the Eastern District of New York that temporarily enjoined implementation of
this regulation. This injunction was affirmed by the Court of Appeals for the Second Circuit in July 2008. These
pedigree tracking laws and regulations could increase the overall regulatory burden and costs associated with our
pharmaceutical distribution business and could have an adverse impact on our results of operations. In addition, the
U.S. Federal Drug Administration (“FDA”) Amendments Act of 2007, which went into effect on October 1, 2007,
requires the FDA to establish standards and identify and validate effective technologies for the purpose of securing
the pharmaceutical supply chain against counterfeit drugs. These standards may include any track-and-trace or
authentication technologies, such as Radio Frequency Identification Devices and other technologies. The FDA must
develop a standardized numerical identifier by April 1, 2010.
Healthcare Fraud: We are subject to extensive and frequently changing local, state and federal laws and
regulations relating to healthcare fraud. The federal government continues to strengthen its position and scrutiny
over practices involving healthcare fraud affecting Medicare, Medicaid and other government healthcare programs.
Furthermore, our relationships with pharmaceutical and medical-surgical product manufacturers and healthcare
providers subject our business to laws and regulations on fraud and abuse, which among other things (1) prohibit
persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a patient for
treatment or for inducing the ordering or purchasing of items or services that are in any way paid for by Medicare,
Medicaid or other government-sponsored healthcare programs, (2) impose a number of restrictions upon referring
physicians and providers of designated health services under Medicare and Medicaid programs and (3) prohibit the
knowing submission of a false or fraudulent claim for payment to a federal health care program (e.g., Medicare and
Medicaid). Legislative provisions relating to healthcare fraud and abuse give federal enforcement personnel
substantially increased funding, powers and remedies to pursue suspected fraud and abuse. Many of the regulations
applicable to us, including those relating to marketing incentives, are vague or indefinite and have not been
interpreted by the courts. They may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a
manner that could require us to make changes in our operations. If we fail to comply with applicable laws and
regulations, we could suffer civil and criminal penalties, including the loss of licenses or our ability to participate in
Medicare, Medicaid and other federal and state healthcare programs.