Cardinal Health 2008 Annual Report Download - page 37

pharmaceuticals into the distribution system. Several states have adopted or are considering adopting laws and
regulations, including pedigree tracking requirements, that are intended to protect the integrity of the
pharmaceutical supply chain. Florida has adopted pedigree tracking requirements and California has enacted a
law requiring chain of custody technology using electronic pedigrees. Regulations requiring pedigree and chain
of custody tracking in certain circumstances were adopted under the federal Prescription Drug Marketing Act and
became effective on December 1, 2006. A preliminary injunction was issued by a federal district court, however,
against implementation of these federal regulations. The injunction was affirmed by a federal appellate court on
July 10, 2008. These laws and regulations could increase the overall regulatory burden and costs associated with
the Company’s pharmaceutical supply chain business, and could adversely affect the Company’s results of
operations and financial condition.
In addition, the 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 track-and-trace or
authentication technologies, such as Radio Frequency Identification and other technologies. The FDA must
develop a standardized numerical identifier by April 1, 2010.
On December 26, 2006, the Company entered into a civil settlement to resolve a civil investigation by the
New York Attorney General’s Office focusing on trading in the secondary market for pharmaceuticals. The
Company has voluntarily undertaken and implemented a number of business reforms regarding certain matters
examined as part of the investigation and also has implemented additional business reforms within its
pharmaceutical supply chain business as required by the settlement. The Company has substantially enhanced its
employee training programs and adopted policies and procedures designed to prevent the improper re-direction
of pharmaceutical products into the secondary market. It also now requires wholesale customers to certify their
compliance with the Company’s wholesaler safe product practices. In connection with the settlement, the
Company agreed to conduct annual agreed-upon procedures testing in 2007, 2008 and 2009 to assess its
compliance with the procedures outlined in the settlement.
Healthcare Fraud and Abuse Laws
The Company is also subject to extensive and frequently changing laws and regulations relating to
healthcare fraud and abuse. The federal government continues to scrutinize potentially fraudulent practices
affecting Medicare, Medicaid and other government healthcare programs. Furthermore, the Company’s activities
as a pharmaceutical and medical device manufacturer and its relationships with other pharmaceutical and
medical-surgical product manufacturers and healthcare providers subject its business to laws and regulations on
fraud and abuse, which, among other things, generally prohibit the Company from soliciting, offering, receiving
or paying any remuneration in order to induce the ordering or purchasing of items or services that are in any way
paid for by Medicare, Medicaid or other government-sponsored healthcare programs.
State attorney general offices have investigated, and may in the future investigate, the Company’s
operations for compliance with laws and regulations relating to healthcare fraud and abuse. For example, certain
state attorney general offices are alleging that the Company has caused Medicaid reimbursements to be paid for
repackaged pharmaceuticals without paying the required Medicaid rebate and that certain of the Company’s
repackaging business practices violate the Medicaid rebate statute. See Note 12 of “Notes to Consolidated
Financial Statements” for a discussion of the state attorneys general investigation related to repackaged
pharmaceuticals.
Many of the regulations applicable to the Company relating to healthcare fraud and abuse are vague or
indefinite and may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that
could require the Company to make changes in its operations. If the Company fails to comply with applicable
laws and regulations, it could suffer civil and criminal penalties, including the loss of licenses or its ability to
participate in Medicare, Medicaid and other federal and state healthcare programs.
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