Medtronic 2016 Annual Report Download - page 27

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or eliminate purchases of our components. The cost-containment measures that health care providers are instituting, both in the
U.S. and internationally, could harm our ability to operate profitably. For example, managed care organizations have successfully
negotiated volume discounts for pharmaceuticals.
In an effort to reduce costs, many existing and potential customers for our products within the U.S. have become members of
group purchase organizations (GPOs) and integrated delivery networks (IDNs). GPOs and IDNs negotiate pricing arrangement
with healthcare product manufacturers and distributors and offer the negotiated prices to affiliated hospitals and other members.
GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding process. Bids are generally
solicited from multiple manufacturers with the intention of driving down pricing. Due to the highly competitive nature of the GPO
and IDN contracting processes, we may not be able to obtain or maintain contract positions with major GPOs and IDNs across
our product portfolio. Furthermore, the increasing leverage of organized buying groups may reduce market prices for our products,
thereby reducing our profitability.
While having a contract with a GPO and IDN for a given product category can facilitate sales to members of that GPO or IDN,
such contract positions can offer no assurance that sales volumes of those products will be maintained. GPOs and IDNs increasingly
are awarding contracts to multiple suppliers for the same product category. Even when we are the sole contracted supplier of a
GPO or IDN for a certain product category, members of the GPO or IDN generally are free to purchase from other suppliers.
Furthermore, GPO and IDN contracts typically are terminable without cause upon 60 to 90 days’ notice. Accordingly, although
we have multiple contracts with many major GPOs and IDNs, the members of such groups may choose to purchase from our
competitors due to the price or quality offered by such competitors, which could result in a decline in our sales and profitability.
Our research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any
previous or future investments or investment collaborations will be successful.
Our strategy to provide a broad range of therapies to restore patients to fuller, healthier lives requires a wide variety of technologies,
products, and capabilities. The rapid pace of technological development in the medical industry and the specialized expertise
required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological
solutions. In addition to internally generated growth through our research and development efforts, historically we have relied,
and expect to continue to rely, upon investments and investment collaborations to provide us access to new technologies both in
areas served by our existing businesses as well as in new areas.
We expect to make future investments where we believe that we can stimulate the development or acquisition of new technologies
and products to further our strategic objectives and strengthen our existing businesses. Investments and investment collaborations
in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future
investments or investment collaborations will be successful or will not materially adversely affect our consolidated earnings,
financial condition, and/or cash flows.
The continuing development of many of our products depends upon us maintaining strong relationships with health care
professionals.
If we fail to maintain our working relationships with health care professionals, many of our products may not be developed and
marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a
decline in our earnings and profitability. The research, development, marketing, and sales of many of our new and improved
products is dependent upon our maintaining working relationships with health care professionals. We rely on these professionals
to provide us with considerable knowledge and experience regarding the development, marketing, and sale of our products.
Physicians assist us as researchers, marketing and product consultants, inventors, and public speakers. If we are unable to maintain
our strong relationships with these professionals and continue to receive their advice and input, the development and marketing
of our products could suffer, which could have a material adverse effect on our consolidated earnings, financial condition, and/or
cash flows.
We are increasingly dependent on sophisticated information technology systems to operate our business and many of our
products and services include integrated software and information technology. If we fail to properly maintain the integrity of
our systems and data, if our products and services do not operate as intended, or we experience a cyber-attack or other breach
of these systems or products, our business could be materially affected.
We are increasingly dependent on sophisticated information technology for our products and infrastructure. We rely on information
technology systems to process, transmit and store electronic information in our day-to-day operations, and routinely process, store
and transmit large amounts of data in our operations, including sensitive personal information as well as proprietary or confidential
information. In addition, many of our products and services incorporate software and information technology that allows patients
and physicians to be connected or to collect data regarding a patient and the therapy he or she is receiving.