Eli Lilly 2013 Annual Report Download - page 24

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event we fail to adhere to these requirements in the future, we could be subject to interruptions in production,
fines and penalties, and delays in new product approvals. Certain of our products are manufactured by third
parties, and their failure to comply with these regulations could adversely affect us through failure to supply
product to us or delays in new product approvals.
The marketing, promotional, and pricing practices of human pharmaceutical manufacturers, as well as the
manner in which manufacturers interact with purchasers and prescribers, are subject to various other U.S.
federal and state laws, including the federal anti-kickback statute and the False Claims Act and state laws
governing 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. 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.
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. The SEC and
the DOJ have increased their FCPA enforcement activities with respect to pharmaceutical companies.
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, including China, Brazil, and the U.K., have
enhanced their laws and regulations in this area, increased their enforcement activities, and/or 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 and other 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, government and government-funded healthcare programs often impose direct and
indirect price controls. We are required to provide rebates to the federal government and respective state
governments on their purchases of our human pharmaceuticals under state Medicaid and Medicaid Managed
Care programs (minimum of 23.1 percent plus adjustments for price increases over time) and rebates to
private payers who cover patients in certain types of health care facilities that serve low-income and
uninsured patients (known as 340B facilities). No rebates are required at this time in the Medicare Part B
(physician and hospital outpatient) program where reimbursement is set on an "average selling price plus 4.3
percent" formula. 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.
Rebates are also negotiated in the private sector. We give rebates to private payers who provide prescription
drug benefits to seniors covered by Medicare and to private payers who provide prescription drug benefits to
their customers. These rebates are affected by the introduction of competitive products and generics in the
same class.