McKesson 2009 Annual Report Download - page 60

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Claims Transmissions: Medical billing and collection activities are governed by numerous federal and state
civil and criminal laws that pertain to companies that provide billing and collection services or that provide
consulting services in connection with billing and collection activities. In connection with these laws, we may be
subjected to federal or state government investigations and possible penalties may be imposed upon us, false claims
actions may have to be defended, private payors may file claims against us and we may be excluded from Medicare,
Medicaid or other government-funded healthcare programs. Any such proceeding or investigation could have an
adverse impact on our results of operations.
E-Prescribing: The use of our solutions by physicians for electronic prescribing, electronic routing of
prescriptions to pharmacies and dispensing is governed by federal and state law. States have differing prescription
format requirements, which we have programmed into our software. In addition, in November 2005, the U.S.
Department of Health and Human Services (the “HHS”) announced regulations by the Centers for Medicare and
Medicaid Services (“CMS”) related to “E-Prescribing and the Prescription Drug Program” (“E-Prescribing
Regulations”). These E-Prescribing Regulations were mandated by the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. The E-Prescribing Regulations set forth standards for the transmission of electronic
prescriptions. These standards are detailed and significant and cover not only transactions between prescribers and
dispensers for prescriptions but also electronic eligibility, benefits inquiries, drug formulary and benefit coverage
information. Our efforts to provide solutions that enable our clients to comply with these regulations could be time
consuming and expensive.
Reimbursements: Both our own profit margins and the profit margins of our customers may be adversely
affected by laws and regulations reducing reimbursement rates for pharmaceuticals and/or medical treatments or
services or changing the methodology by which reimbursement levels are determined. For example, the Deficit
Reduction Act of 2005 (“DRA”) was intended to reduce net Medicare and Medicaid spending by approximately $11
billion over five years. Effective January 1, 2007, the DRA changed the federal upper payment limit for Medicaid
reimbursement from 150% of the lowest published price for generic pharmaceuticals (which is usually the average
wholesale price) to 250% of the lowest average manufacturer price (“AMP”). On July 17, 2007, CMS published a
final rule implementing these provisions and clarifying, among other things, the AMP calculation methodology and
the DRA provision requiring manufacturers to publicly report AMP for branded and generic pharmaceuticals. On
December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction
prohibiting use of the AMP calculation in connection with Medicaid reimbursement pending resolution of a lawsuit
claiming that CMS had acted unlawfully in adopting the rule. On July 15, 2008, the U.S. Congress enacted the
Medicaid Improvements for Patients and Providers Acts of 2008 (“MIPPA,”) which delays the adoption of CMS’s
final rule and prevents CMS from publishing AMP data until October 1, 2009. We expect that the use of an AMP
benchmark would result in a reduction in the Medicaid reimbursement rates to our customers for certain generic
pharmaceuticals, which could indirectly impact the prices that we can charge our customers for generic
pharmaceuticals and cause corresponding declines in our profitability. There can be no assurance that the changes
under the DRA would not have an adverse impact on our business.
Interoperability Standards: There is increasing demand among customers, industry groups and government
authorities that healthcare software and systems provided by various vendors be compatible with each other. This
need for interoperability is leading to the development of standards by various groups. The Certification
Commission for Healthcare Information Technology (“CCHIT”) has developed a set of criteria defining levels of
interoperability, functionality and security for the industry, which are still being modified and refined. Various
federal, state and foreign government agencies are also developing standards that could become mandatory for
systems purchased by these agencies. For example, the recently enacted American Recovery and Reinvestment Act
of 2009 requires meaningful use of “certified” healthcare information technology products by healthcare providers
in order to receive stimulus funds from the federal government, but the certification standards have not yet been
established. We may incur increased development costs and delays in delivering solutions if we need to upgrade our
software and systems to be in compliance with these varying and evolving standards. In addition, delays in
promulgating these standards may result in postponement or cancellation of our customers’ decisions to purchase
our products.