Eli Lilly 2012 Annual Report Download - page 23

11
kickbacks, false claims, unfair trade practices, and consumer protection. These laws are administered by,
among others, the Department of Justice (DOJ), the Office of Inspector General of the Department of Health
and Human Services, the Federal Trade Commission, the Office of Personnel Management, and state
attorneys general. Over the past several years, the FDA, the DOJ, and many of these other agencies have
increased their enforcement activities with respect to pharmaceutical companies and increased the inter-
agency coordination of enforcement activities. Over this period, several claims brought by these agencies
against Lilly and other companies under these and other laws have resulted in corporate criminal sanctions
and very substantial civil settlements. See Item 3, “Legal Proceedings,” for information regarding a Corporate
Integrity Agreement entered into by Lilly in connection with the resolution of a U.S. federal marketing
practices investigation and certain related state investigations involving Zyprexa.
The U.S. Foreign Corrupt Practices Act of 1977 (FCPA) prohibits certain individuals and entities, including U.S.
publicly traded companies, from promising, offering, or giving anything of value to foreign officials with the
corrupt intent of influencing the foreign official for the purpose of helping the company obtain or retain
business or gain any improper advantage. The FCPA also imposes specific recordkeeping and internal
controls requirements on U.S. publicly traded companies. As noted above, outside the U.S., our business is
heavily regulated and therefore involves significant interaction with foreign officials. Additionally, in many
countries outside the U.S., the health care providers who prescribe human pharmaceuticals are employed by
the government and the purchasers of human pharmaceuticals are government entities; therefore, our
interactions with these prescribers and purchasers are subject to regulation under the FCPA. Recently the
SEC and the DOJ have increased their FCPA enforcement activities with respect to pharmaceutical companies.
See Item 3, “Legal Proceedings,” for information about a SEC/DOJ investigation involving our operations in
several countries.
In addition to the U.S. application and enforcement of the FCPA, the various jurisdictions in which we operate
and supply our products have laws and regulations aimed at preventing and penalizing corrupt and
anticompetitive behavior. In recent years, several jurisdictions have enhanced their laws and regulations in
this area, increased their enforcement activities, and increased the level of cross-border coordination and
information sharing.
It is possible that we could become subject to additional administrative and legal proceedings and actions,
which could include claims for civil penalties (including treble damages under the False Claims Act), criminal
sanctions, and administrative remedies, including exclusion from U.S. federal health care programs. It is
possible that an adverse outcome in future actions could have a material adverse impact on our consolidated
results of operations, liquidity, and financial position.
Regulations Affecting Human Pharmaceutical Pricing, Reimbursement, and Access
In the United States, we are required to provide rebates to state governments on their purchases of our
human pharmaceuticals under state Medicaid programs and to private payers who cover patients in certain
types of health care facilities that serve low-income and uninsured patients (known as 340B facilities). We also
give rebates to private payers who provide prescription drug benefits to seniors covered by Medicare.
Additional cost-containment measures have been adopted or proposed by federal, state, and local
government entities that provide or pay for health care. In most international markets, we operate in an
environment of government-mandated cost-containment programs, which may include price controls,
reference pricing, discounts and rebates, restrictions on physician prescription levels, restrictions on
reimbursement, compulsory licenses, health economic assessments, and generic substitution.
The 2010 enactment of the Patient Protection and Affordable Care Act and The Health Care and Education
Reconciliation Act brought significant changes to U.S. health care. The minimum statutory rebate for branded
prescription drugs sold to Medicaid beneficiaries increased from 15.1 percent to 23.1 percent. This rebate has
been expanded to managed-Medicaid, a program that provides for the delivery of Medicaid benefits via
managed care organizations, under arrangements between those organizations and state Medicaid agencies.
Additionally, a prescription drug discount program for outpatient drugs in 340B facilities has been expanded.
Drug manufacturers are required to provide a discount of 50 percent of the cost of branded prescription drugs
for Medicare Part D participants who are in the “doughnut hole” (the coverage gap in Medicare prescription
drug coverage). Additionally, an annual fee is imposed on pharmaceutical manufacturers and importers that
sell branded prescription drugs to specified government programs. See Item 7, “Management’s Discussion
and Analysis—Executive Overview—Legal, Regulatory, and Other Matters,” for more discussion of U.S. health