Cardinal Health 2009 Annual Report Download - page 39

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the next few years as a result of efforts to lower the overall cost of healthcare and the expiration of certain
pharmaceutical patents. A decrease in the availability or changes in pricing of or reimbursements for generic
pharmaceuticals could adversely affect the Company’s results of operations and financial condition.
Prescription drug pedigree tracking. Various government agencies, including state boards of pharmacy and
comparable government agencies, have increased efforts to regulate the pharmaceutical supply chain in order to
prevent the introduction of counterfeit, diverted, adulterated or mislabeled pharmaceuticals into the supply chain.
To date, 28 states have adopted some form of pedigree tracking requirements, 15 of which currently require
prescription drug pedigrees in certain situations. 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. See “Item 1—Business—Regulatory Matters”
above for more information regarding prescription drug pedigree tracking.
Deficit Reduction Act of 2005. The DRA changed the federal upper payment limit for Medicaid
reimbursement from 150% of the published price for generic pharmaceuticals to 250% of the AMP and requires
manufacturers to publicly report AMP for branded and generic pharmaceuticals. Recently enacted legislation has
delayed the implementation of these changes until October 1, 2009. The Company expects the use of an AMP
benchmark to result in a reduction in the Medicaid reimbursement rates to its customers for certain generic
pharmaceuticals, which may indirectly impact the prices that the Company can charge its customers for generic
pharmaceuticals and cause corresponding declines in the Company’s gross margin. There can be no assurance
that the changes in the reimbursement formula and related reporting requirements and other provisions of the
DRA will not have an adverse effect on the Company’s business. See “Item 1—Business—Regulatory Matters”
above for more information regarding the DRA.
The Company’s pharmaceutical supply chain business is subject to appreciation in branded pharmaceutical
prices and deflation in generic pharmaceutical prices which subjects the Company to risks and
uncertainties.
The Company continues to generate a portion of its gross margin from the sale of some manufacturers’
products from pharmaceutical price appreciation without receiving distribution service agreement fees. For these
manufacturers, a reduction in the frequency and magnitude of price increases, as well as restrictions in the
amount of inventory available to the Company, could adversely affect the Company’s results of operations and
financial condition. In addition, the pharmaceutical supply chain business distributes generic pharmaceuticals,
which are generally subject to price deflation. An increase in the rate and magnitude of generic pharmaceutical
price deflation could adversely affect the Company’s results of operations and financial condition.
Tax legislation initiatives or challenges to the Company’s tax positions could adversely affect the
Company’s results of operations and financial condition.
The Company is a large multinational corporation with operations in the United States and international
jurisdictions. As such, the Company is subject to the tax laws and regulations of the U.S. federal, state and local
governments and of many international jurisdictions. From time to time, various legislative initiatives may be
proposed that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s
effective tax rate or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal,
state and local, as well as international, tax laws and regulations are extremely complex and subject to varying
interpretations. There can be no assurance that the Company’s tax positions will not be challenged by relevant
tax authorities or that the Company would be successful in any such challenge. See Note 10 of “Notes to
Consolidated Financial Statements” for a discussion of Notices of Proposed Adjustment.
17