Medtronic 2016 Annual Report Download - page 21

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Inspector General, and numerous other federal, state, and non-U.S. governmental authorities. These authorities and members of
Congress have been increasing their scrutiny of our industry. In addition, certain state governments and the federal government
have enacted legislation aimed at increasing transparency of our interactions with health care providers. As a result, we are required
by law to disclose payments and other transfers of value to health care providers licensed by certain states and to all U.S. physicians
and U.S. teaching hospitals at the federal level. Any failure to comply with these legal and regulatory requirements could impact
our business. In addition, we may continue to devote substantial additional time and financial resources to further develop and
implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which may also impact
our business. We anticipate that governmental authorities will continue to scrutinize our industry closely, and that additional
regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to our operations.
We are subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially
adversely affect our financial condition and business operations.
Our medical devices are subject to regulation by numerous government agencies, including the U.S. FDA and comparable agencies
outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing, and distribution of our products. We cannot guarantee that we will be
able to obtain or maintain marketing clearance for our new products or enhancements or modifications to existing products, and
the failure to maintain approvals or obtain approval or clearance could have a material adverse effect on our business, results of
operations, financial conditions and cash flows. Even if we are able to obtain such approval or clearance, it may:
• take a significant amount of time,
• require the expenditure of substantial resources,
• involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance,
• involve modifications, repairs, or replacements of our products, and
• result in limitations on the proposed uses of our products.
Both before and after a product is commercially released, we have ongoing responsibilities under U.S. FDA regulations. Many of
our facilities and procedures and those of our suppliers are also subject to periodic inspections by the U.S. FDA to determine
compliance with the U.S. FDA’s requirements, including primarily the quality system regulations and medical device reporting
regulations. The results of these inspections can include inspectional observations on U.S. FDA’s Form-483, warning letters, or
other forms of enforcement. Since 2009, the U.S. FDA has significantly increased its oversight of companies subject to its
regulations, including medical device companies, by hiring new investigators and stepping up inspections of manufacturing
facilities. The U.S. FDA has recently also significantly increased the number of warning letters issued to companies. If the U.S.
FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are
ineffective or pose an unreasonable health risk, the U.S. FDA could ban such medical devices, detain or seize adulterated or
misbranded medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market
approval applications or require certificates of non-U.S governments for exports, and/or require us to notify health professionals
and others that the devices present unreasonable risks of substantial harm to the public health. The U.S. FDA may also assess civil
or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis, or enjoin
and/or restrain certain conduct resulting in violations of applicable law. The U.S. FDA may also recommend prosecution to the
U. S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing
and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial
modification to our business practices and operations.
In addition, the U.S. FDA has taken the position that device manufacturers are prohibited from promoting their products other
than for the uses and indications set forth in the approved product labeling. A number of enforcement actions have been taken
against manufacturers that promote products for “off-label” uses, including actions alleging that federal health care program
reimbursement of products promoted for “off-label” uses constitute false and fraudulent claims to the government. The failure to
comply with “off-label” promotion restrictions can result in significant civil or criminal exposure, administrative obligations and
costs, and/or other potential penalties from, and/or agreements with, the federal government.
Pursuant to Dodd-Frank, the SEC promulgated final rules regarding disclosure of the use of certain minerals, known as "conflict
minerals" (tantalum, tin, tungsten (or their ores), and gold) which are mined from the Democratic Republic of the Congo and
adjoining countries. Under the rules, we are now required to disclose the procedures we employ to determine the sourcing of such
minerals and metals produced from those minerals. There are costs associated with complying with these disclosure requirements,
including for diligence in regards to the sources of any conflict minerals used in our products, in addition to the cost of remediation
and other changes to products, processes, or sources of supply as a consequence of such verification activities. In addition, the
implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As of the
date of our conflict minerals report for the 2015 calendar year, we were unable to obtain the necessary information on conflict
minerals from all of our suppliers and were unable to determine that all of our products are conflict free. In addition, we may
continue to face difficulties in gathering this information in the future. We may face reputational challenges if we determine that