McKesson 2016 Annual Report Download - page 23

McKESSON CORPORATION
be compatible with each other. In 2013, in order to address this demand for interoperability we and a number of
other healthcare information technology (“IT”) companies co-founded the CommonWell Health Alliance with
the aim of developing a standard for data sharing among doctors, hospitals, clinics and pharmacies. Certain
federal and state agencies also are developing standards that could become mandatory for software and systems
purchased by these agencies, or used by our customers. With respect to legislation addressing interoperability,
MACRA promotes and defines interoperability, requires metrics to measure interoperability, and requires
vendors and providers to attest that they are not blocking data. Regarding meaningful use requirements, the
HITECH Act requires meaningful use of “certified” healthcare information technology products by healthcare
providers in order to receive stimulus funds from the federal government. Further, the 21st Century Cures bill
that passed the U.S. House of Representatives last year contained language focused on promoting greater
interoperability of health IT. Specifically the bill creates penalties for so-called “information blocking” by IT
vendors or providers. The bill also carves most health IT products out of the FDA’s jurisdiction, but includes a
clawback provision that would enable FDA to regulate products on a case-by-case basis if it determined they
pose a risk to patient safety. Finally, the bill included additional funding for the National Institutes of Health, and
the FDA. The Senate is currently considering similar legislation with final passage possible this year.
Although several of our healthcare information technology products have received certification, rules
regarding meaningful use may be changed or supplemented in the future. As a result of interoperability and
meaningful requirements, we may incur increased development costs and delays in receiving certification for our
products, and changing or supplementing rules also may lengthen our sales and implementation cycle. We also
may incur costs in periods prior to the corresponding recognition of revenue. To the extent these requirements
subsequently are changed or supplemented, or we are delayed in receiving certification for our products,
customers may postpone or cancel their decisions to purchase or implement these products.
FDA Regulation of Medical Software: The FDA has increasingly focused on the regulation of medical
software and health information technology products as medical devices under the federal Food, Drug and
Cosmetic Act. For example, in 2011 the FDA issued a rule on medical device data systems that regulates certain
software that electronically stores, transfers or displays data originating from medical devices as Class 1 medical
devices themselves (i.e., those devices deemed by the FDA to be low risk and subject to the least regulatory
controls). However, in February 2015, the FDA issued guidance to inform manufacturers and distributors of
medical device data systems that it did not intend to enforce compliance with regulatory controls that apply to
medical device data systems, medical image storage devices, and medical image communication devices. If the
FDA chooses to regulate more of our products as medical devices, or subsequently changes or reverses its
guidance regarding not enforcing regulatory controls for certain medical device products, it can impose extensive
requirements upon us. If we fail to comply with the applicable requirements, the FDA could respond by imposing
fines, injunctions or civil penalties, requiring recalls or product corrections, suspending production, refusing to
grant pre-market clearance of products, withdrawing clearances and initiating criminal prosecution. Any
additional FDA regulations governing health information technology products, once issued, may increase the cost
and time to market of new or existing products or may prevent us from marketing our products. The 21st Century
Cures bill would also change the way health IT would be regulated by the FDA. The bill also carves most health
IT products out of the FDA’s jurisdiction, but includes a clawback provision that would enable FDA to regulate
products on a case-by-case basis if it determined they pose a risk to patient safety. The Senate is currently
considering similar legislation with final passage probable this year.
Standards for Submission of Healthcare Claims: HHS previously adopted two rules that impact healthcare
claims submitted for reimbursement. The first rule modified the standards for electronic healthcare transactions
(e.g., eligibility, claims submission and payment and electronic remittance) from Version 4010/4010A to Version
5010. The second rule updated and expanded the standard medical code sets for diagnosis and procedure coding
from International Classification of Diseases, Ninth Revision (“ICD-9”) to International Classification of
Diseases, Tenth Revision (“ICD-10”). The compliance date for ICD-10 conversion was postponed from
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