McKesson 2006 Annual Report Download - page 54

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Although Provider Technologies systems have been updated and modified to comply with the current requirements of HIPAA, evolving
HIPAA-related laws or regulations, such as the claims attachment rule, could restrict the ability of our customers to obtain, use or disseminate
patient information. This could adversely affect demand for our products if they are not re-designed in a timely manner in order to meet the
requirements of any new regulations that seek to protect the privacy and security of patient data or enable our customers to execute new or
modified healthcare transactions. We may need to expend additional capital, research and development and other resources to modify our
products to address evolving data security and privacy issues.
Two Federal bills (H.R. 4157 and S.1952) were introduced in October 2005 proposing the adoption of the ICD-10-CM/ICD-10-PCS code
set to replace the current ICD-9-CM code set with a recommended two year time frame for implementation. Although it is unclear that either of
the bills will be finalized in 2006, the replacement of ICD-9-CM code set with ICD-10-CM/PCS code sets will impact Provider Technologies’
products and may require a significant development effort. In the event that the legislation is not passed this year, there remains a potential that
the ICD-10-CM/PCS code set will be mandated at a future date.
The length of our sales and implementation cycles for our Provider Technologies segment could have an adverse impact on our future
operating results.
Our Provider Technologies segment has long sales and implementation cycles, which could range from several months to over two years or
more from initial contact with the customer to completion of implementation. How and when to implement, replace, or expand an information
system, or modify or add business processes, are major decisions for healthcare organizations. The solutions we provide typically require
significant capital expenditures and time commitments by the customer. Any decision by our customers to delay implementation may adversely
affect our revenues. Furthermore, delays or failures to meet milestones established in our agreements may result in a breach of contract,
termination of the agreement, damages and/or penalties as well as a reduction in our margins or a delay in our ability to recognize revenue.
Our inability to perform well under chronic disease or impact condition programs could have an adverse impact on our business and
results of operations.
Part of our growth strategy focuses on developing health and care support programs to address chronic diseases and medical conditions as
well as the overall health of all enrollees of a health plan. Our success in this area, including our ability to recognize revenue, is highly
dependent upon the timely receipt of accurate data from health plan customers and our accurate analysis of such data. Data acquisition, data
quality control and data analysis are complex processes that carry a risk of untimely, incomplete or inaccurate data from health plan customers
or flawed analysis of such data. If we do not receive timely and accurate data from health plan customers or our analyses are flawed, or if we
fail to execute on new or modified programs, then our operating results could be adversely impacted.
Reduced capacity in the commercial property insurance market exposes us to potential loss.
In order to provide prompt and complete service to our major Pharmaceutical Solutions customers, we maintain significant product
inventory at certain of our distribution centers. While we seek to maintain property insurance coverage in amounts sufficient for our business,
there can be no assurance that our property insurance will be adequate or available on acceptable terms. One or more large casualty losses
caused by fire, earthquake or other natural disaster in excess of our coverage limits could materially harm our business, results of operations or
financial condition.
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