Medtronic 2015 Annual Report Download - page 32

designing products that mirror the capabilities of our products or technology without infringing our intellectual property rights.
If we are unable to protect our intellectual property in these countries, it could have a material adverse effect on our business,
financial condition or results of operations.
Quality problems with, and product liability claims in connection with, our processes, goods, and services, could lead to
recalls or safety alerts, harm our reputation and have a material adverse effect on our business, results of operations,
financial condition and our cash flows.
Quality is extremely important to us and our customers due to the serious and costly consequences of product failure and our
business exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical
devices. In addition, many of our products are often used in intensive care settings with seriously ill patients and some of the
medical devices we manufacture and sell are designed to be implanted in the human body for long periods of time or
indefinitely. Component failures, manufacturing defects, design flaws, off-label use, or inadequate disclosure of product-related
risks or product-related information with respect to our products could result in an unsafe condition or injury to, or death of, a
patient. These problems could lead to recall of, or issuance of a safety alert relating to, our products, and could result in product
liability claims and lawsuits, including class actions, which could ultimately result, in certain cases, in the removal from the
body of such products and claims regarding costs associated therewith. Due to the strong name recognition of the Medtronic and
Covidien brands, a material adverse event involving one of our products could result in reduced market acceptance and demand
for all products within that brand, and could harm our reputation and ability to market products in the future.
In addition, our quality certifications are critical to the marketing success of our goods and services. If we fail to meet these
standards and our products are the subject of recalls or safety alerts, our reputation could be damaged, we could lose customers,
and our revenue and results of operations could decline. Our success also depends generally on our ability to manufacture to
exact tolerances precision-engineered components, subassemblies, and finished devices from multiple materials. If our
components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage and market
share could be harmed. In certain situations, we also may undertake a voluntary recall of products or temporarily shut down
production lines based on performance relative to our own internal safety and quality monitoring and testing data.
Further, we have elected to self-insure with respect to product liability risks and any product liability claim brought against us,
with or without merit, could be costly to defend. See “Our self-insurance program may not be adequate to cover future losses.”
Any of the foregoing problems, including product liability claims or product recalls in the future, regardless of their ultimate
outcome, could harm our reputation and have a material adverse effect on our business, results of operations, financial
condition, and cash flows.
Health care policy changes, including U.S. health care reform legislation, signed in 2010, may have a material adverse effect
on us.
In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the
federal government, state governments, regulators, and third-party payers to control these costs and, more generally, to reform
the U.S. health care system. Certain of these proposals could limit the prices we are able to charge for our products or the
amounts of reimbursement available for our products and could limit the acceptance and availability of our products. The
adoption of some or all of these proposals could have a material adverse effect on our financial condition and results of
operations.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and
Education Affordability Reconciliation Act of 2010. Certain provisions of the law will not be effective for a number of years
and there are many programs and requirements for which the details have not yet been fully established or consequences not
fully understood, and it is unclear what the full impacts will be from the law. The legislation imposes significant new taxes on
medical device makers in the form of a 2.3 percent excise tax on all U.S. medical device sales that commenced in January 2013.
Under the legislation, the total cost to the medical device industry is expected to be approximately $20 billion over 10 years.
The law also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this
point what negative unintended consequences these provisions will have on patient access to new technologies. The Medicare
provisions include value-based payment programs, increased funding of comparative effectiveness research, reduced hospital
payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment
methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the law
includes a reduction in the annual rate of inflation for Medicare payments to hospitals that began in 2011 and the establishment
of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending. We cannot
22