This excerpt taken from the CAH 10-K filed Aug 27, 2008.
Changes in the U.S. healthcare environment could adversely affect the Companys results of operations and financial condition.
The Companys products and services are primarily intended to function within the current structure of the healthcare industry in the United States. In recent years, the healthcare industry has changed significantly in an
effort to reduce costs. These changes include increased use of managed care, cuts in Medicare and Medicaid reimbursement levels, consolidation of pharmaceutical and medical-surgical supply distributors, and the development of large, sophisticated purchasing groups.
The Company expects the healthcare industry to continue to change significantly in the future. Some of these changes, such as adverse changes in government funding of healthcare services, legislation or regulations governing the privacy of patient information, or changes in the delivery or pricing of or reimbursement for pharmaceuticals, medical devices, healthcare services or mandated benefits, may cause healthcare industry participants to reduce the amount of the Companys products and services they purchase or the price they are willing to pay for such products and services. Changes in the healthcare industrys or in any of the Companys suppliers pricing, reimbursement, selling, inventory, distribution or supply policies or practices, or changes in the Companys customer mix, could also significantly reduce the Companys revenue, increase the Companys costs or otherwise significantly affect its results of operations.
Generic pharmaceuticals. Healthcare and public policy trends indicate that the number of generic pharmaceuticals will increase over the next few years as a result of the expiration of certain pharmaceutical patents. A decrease in the availability or changes in pricing of or reimbursements for generic pharmaceuticals could adversely affect the Companys results of operations and financial condition.
Prescription drug pedigree tracking. There have been increasing efforts by various levels of government agencies, including state departments of health, state boards of pharmacy and comparable government agencies, to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit, diverted, adulterated or mislabeled pharmaceuticals into the distribution system. Several states have adopted or are considering adopting laws and regulations, including pedigree tracking requirements, that are intended to protect the integrity of the pharmaceutical supply chain. These laws and regulations could increase the overall regulatory burden and costs associated with the Companys pharmaceutical supply chain business, and could adversely affect the Companys results of operations and financial condition. See Item 1BusinessRegulatory Matters above for more information regarding prescription drug pedigree tracking.
Deficit Reduction Act of 2005. The DRA changed the federal upper payment limit for Medicaid reimbursement from 150% of the lowest published price for generic pharmaceuticals (which is usually the average wholesale price) to 250% of the AMP and requires manufacturers to publicly report AMP for branded and generic pharmaceuticals. Recently enacted legislation has delayed the implementation of these changes until October 1, 2009. The Company expects the use of an AMP benchmark to result in a reduction in the Medicaid reimbursement rates to its customers for certain generic pharmaceuticals, which may indirectly impact the prices that the Company can charge its customers for generic pharmaceuticals and cause corresponding declines in the Companys gross margin. There can be no assurance that the changes in the reimbursement formula and related reporting requirements and other provisions of the DRA will not have an adverse effect on the Companys business. See Item 1BusinessRegulatory Matters above for more information regarding the DRA.
Direct purchase policies. Some manufacturers have adopted policies attempting to limit the ability of wholesalers, including the Healthcare Supply Chain ServicesMedical segments businesses, to purchase products from anyone other than the manufacturer. If manufacturers are successful in implementing these policies in the future, the Companys results of operations could be adversely affected if the Company is unable to negotiate satisfactory fee-based or other compensation arrangements with these manufacturers to mitigate the lost gross margin opportunity. See Item 1BusinessSuppliers above for more information regarding direct purchase policies.