Medtronic 2012 Annual Report Download - page 32

to both the security and privacy rule, Business Associates will be subject to direct enforcement by HHS,
including civil and criminal liability, just as Covered Entities are. In the past, HIPAA has generally affected
us indirectly. Medtronic is generally not a Covered Entity, except for a few units such as our Diabetes
business and our health insurance plans. Medtronic only operates as a Business Associate to Covered
Entities in a limited number of instances. In those cases, the patient data that we receive and analyze may
include protected health information. We are committed to maintaining the security and privacy of patients’
health information and believe that we meet the expectations of the HIPAA rules. Some modifications to
our systems and policies may be necessary, but the framework is already in place. However, the potential
for enforcement action against us is now greater, as HHS can take action directly against Business
Associates. Thus, while we believe we are and will be in substantial compliance with HIPAA standards,
there is no guarantee that the government will not disagree. Enforcement actions can be costly and interrupt
regular operations of our business. Nonetheless, these requirements affect a limited subset of our business.
We believe the ongoing costs and impacts of assuring compliance with the HIPAA privacy and security
rules are not material to our business. We are also impacted by the privacy requirements of countries outside
the U.S. Privacy standards in Europe and Asia are becoming increasingly strict. Enforcement action and
financial penalties related to privacy in the EU are growing, and new laws and restrictions are being passed.
The management of cross border transfers of information among and outside of EU member countries is
becoming more complex, which may complicate our clinical research activities, as well as product offerings
that involve transmission or use of clinical data. We will continue our efforts to comply with those
requirements and to adapt our business processes to the standards.
Government and private sector initiatives to limit the growth of health care costs, including price
regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies,
technology assessments, 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 and therapies. Government programs, including Medicare
and Medicaid, private health care insurance, and managed-care plans have attempted to control costs by
limiting the amount of reimbursement they will pay for particular procedures or treatments, tying
reimbursement to outcomes, and other mechanisms designed to constrain utilization and contain costs.
Hospitals, which purchase implants, are also seeking to reduce costs through a variety of mechanisms,
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 our
products. Some third-party payers must also approve coverage for new or innovative devices or therapies
before they will reimburse health care providers who use the medical devices or therapies. Even though a
new medical device may have been cleared for commercial distribution, we may find limited demand for the
device until reimbursement approval has been obtained from governmental and private third-party payers.
In addition, some private third-party payers require that certain procedures or that the use of certain
products be authorized in advance as a condition of reimbursement. As a result of our manufacturing
efficiencies and cost controls, we believe we are well-positioned to respond to changes resulting from the
worldwide trend toward cost-containment; however, uncertainty remains as to the nature of any future
legislation, making it difficult for us to predict the potential impact of cost-containment trends on future
operating results.
The delivery of our devices is subject to regulation by HHS and comparable state and non-U.S. agencies
responsible for reimbursement and regulation of health care items and services. U.S. laws and regulations
are imposed primarily in connection with the Medicare and Medicaid programs, as well as the government’s
interest in regulating the quality and cost of health care. Foreign governments also impose regulations
in connection with their health care reimbursement programs and the delivery of health care items
and services.
Federal health care laws apply when we or customers submit claims for items or services that are
reimbursed under Medicare, Medicaid, or other federally-funded health care programs. The principal federal
laws include: (1) the False Claims Act which prohibits the submission of false or otherwise improper claims
for payment to a federally-funded health care program; (2) the Anti-Kickback Statute which prohibits offers
to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items or
services reimbursable by a Federal health care program; (3) the Stark law which prohibits physicians from
referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain
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