Medtronic 2008 Annual Report Download - page 49

an unreasonable health risk, the FDA could ban such medical devices,
detain or seize adulterated or misbranded medical devices, order a
recall, repair, replacement or refund of such devices and require us to
notify health professionals and others that the devices present
unreasonable risks of substantial harm to the public health. The FDA
may also impose operating restrictions, enjoin and restrain certain
violations of applicable law pertaining to medical devices and assess
civil or criminal penalties against our officers, employees or us. The FDA
may also recommend prosecution to the U.S. Department of Justice.
The FDA, in cooperation with U.S. Customs and Border Protection
(CBP), administers controls over the import of medical devices into the
U.S. The CBP imposes its own regulatory requirements on the import
of our products, including inspection and possible sanctions for
noncompliance. The FDA also administers certain controls over the
export of medical devices from the U.S. International sales of our
medical devices that have not received FDA approval are subject to FDA
export requirements. Each foreign country to which we export medical
devices also subjects such medical devices to their own regulatory
requirements. Frequently, we obtain regulatory approval for medical
devices in foreign countries first because their regulatory approval is
faster or simpler than that of the FDA. However, as a general matter,
foreign regulatory requirements are becoming increasingly stringent.
In the European Union, a single regulatory approval process has been
created, and approval is represented by the CE Mark. To obtain a CE
Mark in the European Union, defined products must meet minimum
standards of safety and quality (i.e., the essential requirements) and then
comply with one or more of a selection of conformity routes. A Notified
Body assesses the quality management systems of the manufacturer
and the product conformity to the essential and other requirements
within the Medical Device Directive. Medtronic is subject to inspection
by Notified Bodies for compliance.
To be sold in Japan, most medical devices must undergo thorough
safety examinations and demonstrate medical efficacy before they are
granted approval, or “shonin.” The Japanese government, through the
Ministry of Health, Labour and Welfare (MHLW), regulates medical
devices under the Pharmaceutical Affairs Law (PAL). Implementation of
PAL and enforcement practices thereunder are evolving, and compliance
guidance from MHLW is still in development. Consequently, companies
continue to work on establishing improved systems for compliance
with PAL. Penalties for a company’s noncompliance with PAL could be
severe, including revocation or suspension of a company’s business
license and criminal sanctions.
The process of obtaining approval to distribute medical products is
costly and time-consuming in virtually all of the major markets where
we sell medical devices. We cannot assure that any new medical devices
we develop will be approved in a timely or cost-effective manner, or
approved at all.
Federal and state laws protect the confidentiality of certain patient
health information, including patient medical records, and restrict the
use and disclosure of patient health information by healthcare providers.
In particular, in April 2003, the U.S. Department of Health and Human
Services (HHS) published patient privacy rules under the Health
Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule)
and, in April 2005, published security rules for protected health
information. The HIPAA privacy and security rules govern the use,
disclosure and security of protected health information by “Covered
Entities,” which are healthcare providers that submit electronic claims,
health plans and healthcare clearinghouses. Other than our Diabetes
operating segment and our health insurance plans, each of which is a
Covered Entity, and where we operate as a Business Associate (which is
anyone that performs a service on behalf of a Covered Entity involving
the use or disclosure of protected health information and is not a
member of the covered entity’s workforce), the HIPAA privacy and
security rules only affect us indirectly. The patient data that we receive
and analyze may include protected health information. We are
committed to maintaining patients’ privacy and working with our
customers and business partners in their HIPAA compliance efforts. The
ongoing costs and impacts of assuring compliance with the HIPAA
privacy and security rules are not material to our business.
Government and private sector initiatives to limit the growth of
healthcare costs, including price regulation, competitive pricing,
coverage and payment policies and managed-care arrangements, are
continuing in many countries where we do business, including the U.S.
These changes are causing the marketplace to put increased emphasis
on the delivery of more cost-effective medical devices. Government
programs, including Medicare and Medicaid, private healthcare
insurance and managed-care plans have attempted to control costs by
limiting the amount of reimbursement they will pay for particular
procedures or treatments, and other mechanisms designed to constrain
utilization and contain costs, including, for example, gainsharing, where
a hospital agrees with physicians to share any realized cost savings
resulting from the physicians’ collective change in practice patterns
such as standardization of devices where medically appropriate. This
has created an increasing level of price sensitivity among customers for
45Medtronic, Inc.