Invacare 2014 Annual Report Download - page 23

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expects to begin expanding NCB to 100% of the Medicare population. CMS announced that Medicare reimbursement rates were
cut an average of 45 percent for those providers participating in the round two of the NCB program. CMS announced that the
NCB program has resulted in $202.1 million in savings in its first year of implementation in the nine metropolitan areas with
significant savings primarily in oxygen and oxygen supplies, mail-order diabetic supplies and standard power wheelchairs. The
CMS Office of the Actuary estimates that this program will save Medicare an estimated $25.8 billion, and beneficiaries an estimated
$17.2 billion, over the next ten years.
Similar trends and concerns are occurring in state Medicaid programs. These recent changes to reimbursement policies, and
any additional unfavorable reimbursement policies or budgetary cuts that may be adopted in the future, could adversely affect the
demand for the Company’s products by customers who depend on reimbursement from the government-funded programs. The
percentage of the Company’s overall sales that are dependent on Medicare or other insurance programs may increase as the portion
of the U.S. population over age 65 continues to grow, making the Company more vulnerable to reimbursement level reductions
by these organizations. Reduced government reimbursement levels also could result in reduced private payor reimbursement levels
because some third-party payors index their reimbursement schedules to Medicare fee schedules. Reductions in reimbursement
levels also may affect the profitability of the Company’s customers and ultimately force some customers without strong financial
resources to become unable to pay their bills as they come due or go out of business. The reimbursement reductions may prove
to be so dramatic that some of the Company’s customers may not be able to adapt quickly enough to survive. The Company is the
industry’s largest creditor and an increase in bankruptcies or financial weakness in the Company’s customer base could have an
adverse effect on the Company’s financial results.
Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have government-
managed health care systems that govern reimbursement for home health care products. The ability of hospitals and other providers
supported by such systems to purchase the Company’s products is dependent, in part, upon public budgetary constraints. Various
countries have tightened reimbursement rates and other countries may follow. If adequate levels of reimbursement from third-
party payors outside of the United States are not obtained, international sales of the Company’s products may decline, which could
adversely affect the Company’s net sales.
The impact of all the changes discussed above is uncertain and could have a material adverse effect on the Company’s
business, financial condition and results of operations.
The adoption of healthcare reform and other legislative developments in the United States may adversely affect the Company’s
business, results of operations and/or financial condition.
The U.S. Affordable Care Act enacted in 2010 includes provisions intended to expand access to health insurance coverage,
improve the quality and reduce the costs of healthcare over time. Specifically, as one means to pay for the costs of the Affordable
Care Act, the law imposes a 2.3% sales-based excise tax on U.S. sales by manufacturers or importers of most medical devices.
The excise tax is deductible by the manufacturer or importer on its federal income tax return. The Company has determined that
most of its products are exempt from the tax based on the retail exemption provided in the Affordable Care Act as defined by the
regulations. However, certain products that it sells for institutional use are subject to the excise tax. Based on its interpretation of
the regulations, the impact from the tax was immaterial for the Company in 2014 and 2013. However, the excise tax may increase
the Company’s cost of doing business, particularly if the exemptions do not ultimately apply as the Company expects based on
its interpretations of the regulations.
The Affordable Care Act and the programs implemented by the law may reduce reimbursements for the Company's products,
may impact the demand for the Company’s products and may impact the prices at which the Company sells its products. In addition,
various healthcare programs and regulations may be ultimately implemented at the federal or state level. Such changes could have
a material adverse effect on the Company’s business, results of operations and/or financial condition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in 2010, and the rules
and regulations enacted thereunder by the SEC and the Commodity Futures Trading Commission (CFTC), institute a wide range
of reforms, certain of which may impact the Company. Among other things, the Dodd-Frank Act contains significant corporate
governance and executive compensation-related provisions that authorize or require the SEC to adopt additional rules and
regulations in these areas, such as shareholder “say on pay” voting and proxy access. The Dodd-Frank Act also provides for new
statutory and regulatory requirements for derivative transactions, including foreign exchange and interest rate hedging transactions,
and new requirements will be implemented over time. The Company enters into foreign exchange contracts, interest rate swaps
and foreign currency forward contracts from time to time to manage its exposure to commodity price risk, foreign currency
exchange risk and interest rate risk. The Company does not enter into derivative transactions for speculative purposes. Unless
exempt, certain of these transactions, such as interest rate swaps and foreign exchange swaps, are required to be cleared by a
registered derivatives clearing organization and subject to exchange trading requirements. If a derivative is required to be cleared,