The ABCs of systemic healthcare reform - Cerner Corporation

known and unknown liabilities; 7) write-off of software development costs, goodwill, client lists and amortization of expenses
related to intangible assets; 8) dilutive issuances of equity securities; and, 9) accounting deficiencies that could arise in
connection with, or as a result of, the acquisition of an acquired company, including issues related to internal control over
financial reporting and the time and cost associated with remedying such deficiencies. If we fail to successfully integrate
acquired businesses or fail to implement our business strategies with respect to these acquisitions, we may not be able to
achieve projected results or support the amount of consideration paid for such acquired businesses.
Risks Related to the Healthcare Information Technology, Healthcare Device and Healthcare
Transaction Industry
The healthcare industry is subject to changing political, economic and regulatory influences. For example, the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) continues to have a direct impact on the healthcare industry by
requiring identifiers and standardized transactions/code sets and necessary security and privacy measures in order to ensure
the appropriate level of privacy of protected health information. These regulatory factors affect the purchasing practices and
operation of healthcare organizations. Federal and state legislatures have periodically considered programs to reform or amend
the U.S. healthcare system at both the federal and state level and to change healthcare financing and reimbursement systems.
These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may
respond by reducing their investments or postponing investment decisions, including investments in our solutions and services.
Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These
providers may try to use their market power to negotiate price reductions for our solutions and services. As the healthcare
industry consolidates, our client base could be eroded, competition for clients could become more intense and the importance
of landing new client relationships becomes greater.
The healthcare industry is highly regulated at the local, state and federal level. We are subject to a significant and wideranging
number of regulations both within the U.S. and elsewhere, such as, regulations in the areas of: healthcare fraud, e-
prescribing, claims processing and transmission, medical devices, the security and privacy of patient data and interoperability
standards.
Healthcare Fraud
Federal and state governments continue to increase their scrutiny over practices involving healthcare fraud affecting healthcare
providers whose services are reimburse by Medicare, Medicaid and other government healthcare programs. Our healthcare
provider clients are subject to laws and regulations on fraud and abuse which, among other things, prohibit the direct or indirect
payment or receipt of any remuneration for patient referrals, or arranging for or recommending referrals or other business paid
for in whole or in part by these federal or state healthcare programs. Federal enforcement personnel have substantial funding,
powers and remedies to pursue suspected or perceived fraud and abuse. The effect of this government regulation on our clients
is difficult to predict. Many of the regulations applicable to our clients and that may be applicable to us, are vague or indefinite
and have not been interpreted by the courts. They may be interpreted or applied by a prosecutorial, regulatory or judicial
authority in a manner that could broaden their applicability to us or require our clients to make changes in their operations or
the way in which they deal with us. If such laws and regulations are determined to be applicable to us and if we fail to comply
with any applicable laws and regulations, we could be subject to sanctions or liability, including exclusion from government
health programs, which could have a material adverse effect on our business, results of operations and financial condition.
E-Prescribing
The use of our solutions by physicians for electronic prescribing, electronic routing of prescriptions to pharmacies and
dispensing is governed by state and federal law. States have differing prescription format requirements, which we have
programmed into our software. In addition, in November 2005, the Department of Health and Human Services announced
regulations by CMS related to “E-Prescribing and the Prescription Drug Program” (“E-Prescribing Regulations”). These E-
Prescribing Regulations were mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The
E-Prescribing Regulations set forth standards for the transmission of electronic prescriptions. The final regulations adopted two
standards effective January 2006. A second and final set of additional e-prescribing transaction standards was published on
April 2, 2008 and becomes effective on April 1, 2009. These standards are detailed and significant, and cover not only
transactions between prescribers and dispensers for prescriptions but also electronic eligibility and benefits inquiries and drug
formulary and benefit coverage information. Our efforts to provide solutions that enable our clients to comply with these
regulations could be time-consuming and expensive.
Claims Transmissions
Certain of our solutions assist our clients in submitting claims to payers, which claims are governed by federal and state laws.
Our solutions are capable of electronically transmitting claims for services and items rendered by a physician to many patients’
payers for approval and reimbursement. Federal law provides civil liability to any person that knowingly submits a claim to a
payer, including Medicare, Medicaid and private health plans, seeking payment for any services or items that have not been
provided to the patient. Federal law may also impose criminal penalties for intentionally submitting such false claims. We have
policies and procedures in place that we believe result in the accurate and complete transmission of claims, provided that the
information given to us by our clients is also accurate and complete. The HIPAA security, privacy and transaction standards, as
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