Medtronic 2008 Annual Report Download - page 50

our products. Some third-party payors must also approve coverage for
new or innovative devices or therapies before they will reimburse
healthcare providers who use the medical devices or therapies.
Even though a new medical device may have been cleared for
commercial distribution, we may find limited demand for the device
until reimbursement approval has been obtained from governmental
and private third-party payors. In addition, some private third-party
payors require that certain procedures or that the use of certain
products be authorized in advance as a condition of reimbursement.
As a result of our manufacturing efficiencies and cost controls, we
believe we are well-positioned to respond to changes resulting from
the worldwide trend toward cost-containment; however, uncertainty
remains as to the nature of any future legislation, making it difficult for
us to predict the potential impact of cost-containment trends on future
operating results.
The delivery of our devices is subject to regulation by HHS and
comparable state and foreign agencies responsible for reimbursement
and regulation of healthcare items and services. U.S. laws and regulations
are imposed primarily in connection with the Medicare and Medicaid
programs, as well as the government’s interest in regulating the quality
and cost of healthcare. Foreign governments also impose regulations
in connection with their healthcare reimbursement programs and the
delivery of healthcare items and services.
Federal healthcare laws apply when we or customers submit claims
for items or services that are reimbursed under Medicare, Medicaid or
other federally-funded healthcare programs. The principal federal laws
include: (1) the False Claims Act which prohibits the submission of false
or otherwise improper claims for payment to a federally-funded
healthcare program; (2) the Anti-Kickback Statute which prohibits offers
to pay or receive remuneration of any kind for the purpose of inducing
or rewarding referrals of items or services reimbursable by a Federal
healthcare program; and (3) the Stark law which prohibits physicians
from referring Medicare or Medicaid patients to a provider that bills
these programs for the provision of certain designated health services if
the physician (or a member of the physician’s immediate family) has a
financial relationship with that provider; and (4) healthcare fraud statutes
that prohibit false statements and improper claims with any third-party
payor. There are often similar state false claims, anti-kickback, anti-self
referral and insurance fraud laws that apply to claims submitted under state
Medicaid or state-funded or private healthcare benefit programs. In
addition, the U.S. Federal Corrupt Practices Act can be used to prosecute
companies in the U.S. for arrangements with physicians or other parties
outside the U.S. if the physician or party is a government official of
another country and the arrangement violates the law of that country.
The laws applicable to us are subject to change, and to evolving
interpretations. If a governmental authority were to conclude that we
are not in compliance with applicable laws and regulations, Medtronic
and its officers and employees could be subject to severe criminal and
civil penalties including substantial penalties, fines and damages and
exclusion from participation as a supplier of product to beneficiaries
covered by Medicare or Medicaid.
We operate in an industry characterized by extensive patent litigation.
Patent litigation can result in significant damage awards and injunctions
that could prevent the manufacture and sale of affected products or
result in significant royalty payments in order to continue selling the
products. At any given time, we are involved as both a plaintiff and a
defendant in a number of patent infringement actions. While it is not
possible to predict the outcome of patent litigation incident to our
business, we believe the costs associated with this type of litigation
could have a material adverse impact on our consolidated results of
operations, financial position or cash flows. See Notes 2 and 15 to the
consolidated financial statements for additional information.
We operate in an industry susceptible to significant product liability
claims. These claims may be brought by individuals seeking relief or by
groups seeking to represent a class. In addition, product liability claims
may be asserted against us in the future based on events we are not
aware of at the present time.
We are also subject to various environmental laws and regulations
both within and outside the U.S. Like other medical device companies,
our operations involve the use of substances regulated under
environmental laws, primarily manufacturing and sterilization processes.
We do not expect that compliance with environmental protection laws
will have a material impact on our consolidated results of operations,
financial position or cash flows.
We have elected to self-insure most of our insurable risks, including
medical and dental costs, disability coverage, physical loss to property,
business interruptions, workers’ compensation, comprehensive general,
director and officer and product liability. This decision was made based
on conditions in the insurance marketplace that have led to increasingly
higher levels of self-insurance retentions, increasing number of coverage
limitations and dramatically higher insurance premium rates. We
continue to monitor the insurance marketplace to evaluate the value to
us of obtaining insurance coverage in the future. Based on historical loss
trends, we believe that our self-insurance program accruals will be
adequate to cover future losses. Historical trends, however, may not be
indicative of future losses. These losses could have a material adverse
impact on our consolidated results of operations, financial position or
cash flows.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
46 Medtronic, Inc.