Cardinal Health 2010 Annual Report Download - page 37

I
n addition, prices for generic pharmaceuticals distributed by our pharmaceutical distribution business tend
to decline over time, which could have an adverse effect on our generic manufacturer margin.
Th
e U.S.
h
ea
l
t
h
care environment is c
h
anging in man
y
wa
y
s, some o
f
w
h
ic
h
ma
y
not
b
e
f
avora
bl
e to us, as
a
resu
l
to
f
recent
f
e
d
era
lh
ea
l
t
h
care
l
egis
l
ation.
Our products and services are primarily intended to function within the current structure of the healthcare
industry in the United States. In recent years, the healthcare industry has undergone significant changes designe
d
to control costs. The use of managed care has increased; Medicare and Medicaid reimbursement levels have
declined; distributors, manufacturers, healthcare providers and pharmacy chains have consolidated; and large,
sophisticated purchasing groups have become more prevalent.
I
n March 2010, Congress approved, and the President signed into law, the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act (collectively the “Healthcare Reform Acts”).
Among other things, the Healthcare Reform Acts seek to expand health insurance coverage to approximately
32 million uninsured Americans. Many of the significant changes in the Healthcare Reform Acts do not tak
e
effect until 2014, including a requirement that most Americans carry health insurance. We expect expansion of
access to health insurance to increase the demand for our
p
roducts and services, but other
p
rovisions of the
Healthcare Reform Acts could affect us adversely. The Healthcare Reform Acts contain many provisions
designed to generate the revenues necessary to fund the coverage expansions and to reduce costs of Medicare an
d
Medicaid. Beginning in 2013, each medical device manufacturer will have to pay a tax in an amount equal to
2.3% of the
p
rice for which the manufacturer sells its medical devices. We manufacture and sell devices that will
be subject to this tax. Additionally, the Healthcare Reform Acts changed the federal upper payment limit fo
r
Medicaid reimbursement to no less than 17
5
% of the average weighted manufacturer’s price (“AMP”) fro
m
2
5
0% of the lowest average manufacturer’s price for generic pharmaceuticals. The AMP provision is expected t
o
become effective in October 2010. We could be adversely affected by, among other things, changes in the
delivery or pricing of or reimbursement for pharmaceuticals, medical devices, or healthcare services
.
Our business re
q
uires consistent, diligent and rigorous com
p
liance with regulator
y
and licensin
g
re
q
uirements.
The healthcare industry is highly regulated. As described above in greater detail in the discussion of our
business in Item 1, we are subject to regulation in the United States at both the federal and state level and i
n
f
oreign countries. Many of our subsidiaries are required to register for permits or licenses with, and to compl
y
with operating and security standards of, regulatory agencies. If we fail to comply with these regulator
y
r
equirements, or if allegations are made that we fail to comply, our results of operations and financial conditio
n
could suffer.
• To lawfully operate our businesses, we are required to hold permits, licenses and other regulatory
a
pprovals from governmental bodies. Failure to maintain or renew, or obtain without significant delay,
n
ecessary permits, licenses or approvals could have an adverse effect on our results of operations and
f
inancial condition. For exam
p
le, in fiscal 2008, the DEA sus
p
ended licenses to distribute controlled
substances held by three of our distribution centers for almost a year because of alleged defects in our
c
ontrolled substance anti-diversion controls.
• Products that we manufacture, distribute or market are required to comply with regulatory
r
e
q
uirements. Noncom
p
liance or concerns over noncom
p
liance could result in
p
roduct corrective
a
ctions, recalls or seizures, warning letters, monetary sanctions, injunctions to halt manufacture and
distribution of products, civil or criminal sanctions, governmental refusal to grant approvals,
r
estrictions on operations, withdrawal of existing approvals and third party claims.
• We are required to comply with laws and regulations relating to healthcare fraud and abuse. The scop
e
a
nd applicability of these laws is not always clear. If we fail to comply with them, we could be subjec
t
11