Medtronic 2013 Annual Report Download - page 36

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Table of Contents
scrutiny of our industry. For example, we have received inquiries from members of Congress and other government agencies
regarding a variety of matters. In addition, certain state governments and the federal government have enacted legislation aimed
at increasing transparency of our interactions with health care providers. As a result, we are required by law to disclose payments
and other transfers of value to health care providers licensed by certain states and, starting with payments or other transfers of
value made on or after August 1, 2013, to all U.S. physicians and U.S. teaching hospitals at the federal level. Any failure to comply
with these legal and regulatory requirements could impact our business. In addition, we may continue to devote substantial additional
time and financial resources to further develop and implement policies, systems, and processes to comply with enhanced legal
and regulatory requirements, which may also impact our business. We anticipate that governmental authorities will continue to
scrutinize our industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and
other adverse effects to our operations.
We are subject to many laws and governmental regulations and any adverse regulatory action may materially adversely affect
our financial condition and business operations.
Our medical devices are subject to regulation by numerous government agencies, including the U.S. FDAand comparable agencies
outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing, and distribution of our medical devices. We cannot guarantee that we
will be able to obtain marketing clearance for our new products or enhancements or modifications to existing products. If such
approval is obtained, it may:
• take a significant amount of time,
• require the expenditure of substantial resources,
• involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance,
• involve modifications, repairs, or replacements of our products, and
• result in limitations on the proposed uses of our products.
Both before and after a product is commercially released, we have ongoing responsibilities under U.S. FDA regulations. We are
also subject to periodic inspections by the U.S. FDAto determine compliance with the U.S. FDA’s requirements, including primarily
the quality system regulations and medical device reporting regulations. The results of these inspections can include inspectional
observations on U.S. FDA’s Form-483, warning letters, or other forms of enforcement. Since 2009, the U.S. FDA has significantly
increased its oversight of companies subject to its regulations, including medical device companies, by hiring new investigators
and stepping up inspections of manufacturing facilities. The U.S. FDA has recently also significantly increased the number of
warning letters issued to companies. If the U.S. FDA were to conclude that we are not in compliance with applicable laws or
regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the U.S. FDA could ban such
medical devices, detain or seize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such
devices, refuse to grant pending pre-market approval applications or require certificates of foreign governments for exports, and/
or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public
health. The U.S. FDA may also impose operating restrictions on a company-wide basis, enjoin and/or restrain certain conduct
resulting in violations of applicable law pertaining to medical devices, and assess civil or criminal penalties against our officers,
employees, or us. The U.S. FDA may also recommend prosecution to the DOJ. Any adverse regulatory action, depending on its
magnitude, may restrict us from effectively marketing and selling our products.
In addition, device manufacturers are permitted to promote products solely for the uses and indications set forth in the approved
product labeling. A number of enforcement actions have been taken against manufacturers that promote products for “off-label”
uses, including actions alleging that federal health care program reimbursement of products promoted for “off-label” uses are false
and fraudulent claims to the government. The failure to comply with “off-label” promotion restrictions can result in significant
administrative obligations and costs, and potential penalties from, and/or agreements with, the federal government.
Pursuant to Dodd-Frank, the SEC promulgated final rules regarding disclosure of the use of certain minerals, known as "conflict
minerals": tantalum, tin, and tungsten (or their ores) and gold; which are mined from the Democratic Republic of the Congo and
adjoining countries. Under the rules, we will also be required to disclose the procedures we employ to determine the sourcing of
such minerals and metals produced from those minerals. These new requirements will require due diligence efforts for the 2013
calendar year, with initial disclosure requirements effective in May 2014. There will be associated costs complying with these
disclosure requirements, including for diligence in regards to the sources of any conflict minerals used in our products, in addition
to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification
activities. In addition, the implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used
in our products. We cannot be sure that we will be able to obtain the necessary information on conflict minerals from our suppliers
or that we will be able to determine that all of our products are conflict free. As a result, we may face reputational challenges if
we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently
verify the origins for all conflict minerals used in our products through the procedures we implement.
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