Cardinal Health 2015 Annual Report Download - page 35

Risk Factors
Cardinal Health | Fiscal 2015 Form 10-K 34
Risk Factors
The risks described below could materially and adversely affect our
results of operations, financial condition, liquidity and cash flows.
These are not the only risks we face. Our businesses also could be
affected by risks that we are not presently aware of or that we currently
consider immaterial to our operations.
We could suffer the adverse effects of competitive pressures.
As described in greater detail in the "Business" section, we operate
in markets that are highly competitive. Because of competition, our
businesses face continued pricing pressure from our customers and
suppliers. If we are unable to offset margin reductions caused by
these pricing pressures through steps such as sourcing or cost control
measures, additional service offerings and sales of higher margin
products, our results of operations and financial condition could be
adversely affected.
In addition, in recent years, the healthcare industry has continued to
consolidate. Further consolidation among our customers and
suppliers could give the resulting enterprises greater bargaining
power, which may adversely impact our results of operations.
Our Pharmaceutical segment's margins are affected by prices
established by manufacturers, the frequency and magnitude of
generic pharmaceutical launches, and other factors that are
beyond our control.
Gross margin in our Pharmaceutical segment is impacted by
pharmaceutical price appreciation and the number and value of
pharmaceutical launches. In past years, these items have impacted
year-over-year margins.
Prices for generic pharmaceuticals generally decline over time. But
at times, some generic products experience price appreciation, which
may positively impact our margins. The frequency and magnitude of
future generic product price appreciation is uncertain.
Prices for branded pharmaceuticals, on the other hand, generally
increase over time. The frequency and magnitude of branded product
price appreciation also is uncertain, and branded manufacturers may
determine not to increase prices or to implement only modest
increases, which can limit our margins.
The number of new generic pharmaceutical launches varies from
year to year, and the margin impact of new launches varies from
product to product. Fewer generic pharmaceutical launches or
launches that are less profitable than those previously experienced
will have an adverse effect on our year-over-year margins.
Our business is subject to rigorous regulatory and licensing
requirements.
The healthcare industry is highly regulated. As described in greater
detail in the "Business" section, we are subject to regulation in the
United States at both the federal and state level and in China and
other foreign countries. If we fail to comply with these regulatory
requirements, or if allegations are made that we fail to comply, our
results of operations and financial condition could be adversely
affected.
To lawfully operate our businesses, we are required to obtain and
hold permits, licenses and other regulatory approvals from, and to
comply with operating and security standards of, numerous
governmental bodies. Failure to maintain or renew necessary
permits, licenses or approvals, or to comply with required standards,
could have an adverse effect on our results of operations and financial
condition.
Products that we manufacture, source, distribute or market must
comply with regulatory requirements. Noncompliance or concerns
over noncompliance may result in suspension of our ability to
distribute, import or manufacture products, product recalls or
seizures, or criminal or civil sanctions. In addition, it can be costly
and time-consuming to obtain regulatory approvals to market a
medical device, and such approvals might not be granted on a timely
basis, if at all.
We are required to comply with laws relating to healthcare fraud and
abuse. The requirements of these laws are complex and subject to
varying interpretations, and it is possible that regulatory authorities
could challenge our policies and practices. If we fail to comply with
these laws, we could be subject to federal or state government
investigations or qui tam actions (false claims cases initiated by
private parties purporting to act on behalf of federal or state
governments), which could result in civil or criminal sanctions,
including the loss of licenses or the ability to participate in Medicare,
Medicaid and other federal and state healthcare programs. Such
sanctions and damages could adversely affect our results of
operations and financial condition.
Our Cardinal Health at Home business and a few of our other
businesses are Medicare-certified suppliers, participate in state
Medicaid programs or manufacture or repackage pharmaceuticals
that are purchased through federal or state healthcare program. Their
failure to comply with applicable standards and regulations could
result in civil or criminal sanctions, including the loss of our ability to
participate in Medicare, Medicaid and other federal and state
healthcare programs.
Our government contracts are subject to specific procurement
regulations. Failure to comply with applicable rules or regulations or
with contractual or other requirements may result in monetary
damages and criminal or civil penalties as well as termination of our
government contracts or our suspension or debarment from
government contract work.
We collect, handle and maintain patient-identifiable healthcare
information and other sensitive personal information, which are
subject to federal, state and foreign laws that regulate the use and
disclosure of such information. Regulations currently in place
continue to evolve, and new laws in this area could further restrict
our ability to collect, handle and maintain personal or patient
information, or could require us to incur additional compliance costs,
either of which could have an adverse impact on our results of
operations. Violations of federal, state or foreign laws concerning