Medco 2015 Annual Report Download - page 28

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Express Scripts 2015 Annual Report
Certain of our subsidiaries have been approved to function as a Medicare Part D sponsor for the purpose of making
Medicare Part D EGWP plans available for eligible clients and certain of our subsidiaries have been approved by CMS to
participate in Medicare Part D as national Medicare Part D sponsors that provide direct services to Medicare Part D eligible
members. Accordingly, certain subsidiaries are required to comply with federal Medicare Part D laws and regulations and are
also required to be licensed as insurers or may otherwise be subject to aspects of state laws regulating the business of insurance.
The administration of Medicare Part D is complex and any failure to effectively execute the provisions of Medicare Part D may
have an adverse effect on our business and our results of operations.
We also provide other products and services in support of our clients’ Medicare Part D plans or federal Retiree Drug
Subsidy plans. We have made, and may be required to make further, substantial investments in the personnel and technology
necessary to administer our Medicare Part D strategy and operations. There are many uncertainties about the financial and
regulatory risks of participating in Medicare Part D, and we can give no assurance these risks will not materially adversely
impact our business and results of operations. The receipt of federal funds made available through Medicare Part D by our
affiliates, our clients or us is subject to compliance with the Medicare regulations and established laws and regulations
governing the federal government’s payment for healthcare goods and services, including the anti-kickback laws and the
federal False Claims Act. If material contractual or regulatory non-compliance was to be identified, including, for example,
during CMS audits or client audits in cases where we provide PBM services to client Medicare Part D sponsors, recoupment,
monetary penalties and/or applicable sanctions, including suspension of enrollment and marketing or debarment from
participation in Medicare programs, could be imposed. Further, the adoption or promulgation of new or more complex
regulatory requirements or changes in the interpretation of existing regulatory requirements, in each case, associated with
Medicare may require us to incur significant compliance-related costs which could adversely impact our business and our
results of operations.
In addition, due to the availability of Medicare Part D, some of our employer clients may stop providing pharmacy
benefit coverage to retirees, instead allowing retirees to choose their own Medicare Part D plans, which could cause a reduction
in utilization for our services. Extensive competition among Medicare Part D plans could also result in the loss of Medicare
members by our managed care customers, which would cause a decline in our membership base. Further, certain of our
Medicare Part D product offerings require premium payment from members for the ongoing benefit, as well as amounts due
from CMS, and as a result of demographics and the potential magnitude and timing of settlement for amounts due from CMS,
these accounts receivable are subject to billing and realization risk in excess of what is experienced in the core PBM business.
We have historically engaged in strategic transactions, including the acquisition of other companies or businesses, and may
engage in similar transactions in the future. Our failure to effectively execute on such transactions or to integrate any acquired
businesses could adversely impact our business and results of operations. The acquisition and integration of any such business
typically generates significant transaction costs and requires significant resources and management attention.
We have historically engaged in strategic transactions, including the acquisition of other companies and businesses.
These transactions typically involve the integration of core business operations and technology infrastructure platforms that
require significant resources and management attention and, among other things, risk client service disruption. Strategic
transactions, including the pursuit of such transactions, often require us to incur significant up-front costs. These costs are
typically non-recurring expenses related to the assessment, due diligence, negotiation and execution of the transaction. We may
also incur additional costs to retain key employees as well as transaction fees and costs related to executing our integration
plans. A failure or significant delay in the integration process could have a material adverse effect on our client service or our
business and results of operations. In addition, such transactions may yield higher operating costs, greater customer attrition or
more significant business disruption than anticipated. Further, even if the integration is successful, there can be no assurance a
transaction will result in the realization of the expected benefits of synergies, cost savings, innovation and operational
efficiencies, or that any realized benefits will be achieved within the anticipated time frame or an otherwise reasonable period
of time.
Our business operations involve the substantial receipt and use of confidential health information concerning individuals and a
failure to adequately protect such information could have a material adverse effect on our business and results of operations.
Most of our activities involve the receipt or use of protected health information concerning individuals. We also use
aggregated and anonymized data for research and analysis purposes, and in some cases, provide access to such data to
pharmaceutical manufacturers and third-party data aggregators and analysts. There is substantial regulation at the federal and
state levels addressing the use, disclosure and security of patient identifiable health information. At the federal level, the Health
Insurance Portability and Accountability Act of 1996 and the regulations issued thereunder (collectively “HIPAA”) impose
extensive requirements governing the transmission, use and disclosure of health information by all participants in health care
delivery, including physicians, hospitals, insurers and other payors. Many of these obligations were expanded under the Health
Information and Technology for Economic and Clinical Health Act (the “HITECH Act”), passed in 2009. Failure to comply
with standards issued pursuant to federal or state statutes or regulations may result in criminal penalties and civil sanctions. In