Medtronic 2013 Annual Report Download - page 38

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Table of Contents
to protect our technology or to provide us with any competitive advantage. Third parties could obtain patents that may require us
to negotiate licenses to conduct our business, and the required licenses may not be available on reasonable terms or at all. We also
rely on non-disclosure and non-competition agreements with certain employees, consultants, and other parties to protect, in part,
trade secrets and other proprietary rights. We cannot be certain that these agreements will not be breached, that we will have
adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information, or
that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.
In addition, the laws of certain countries in which we market some of our products do not protect our intellectual property rights
to the same extent as the laws of the United States. 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.
Product liability claims could adversely impact our financial condition and our earnings and impair our reputation.
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 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, 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. The occurrence of such a problem could result in product liability claims or a recall of, or safety alert relating to, one
or more of our products which could ultimately result, in certain cases, in the removal from the body of such products and claims
regarding costs associated therewith. We have elected to self-insure with respect to product liability risks. Product liability claims
or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business and
reputation and on our ability to attract and retain customers for our products.
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 position 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% excise tax on all U.S. medical device sales commencing in January 2013. Under the legislation, the total
cost to the medical device industry is expected to be approximately $20 billion over 10 years. We expect the new tax will materially
and adversely affect our business, cash flows and results of operations. We currently estimate that our annual excise tax fee will
be within the range of $100 to $150 million pre-tax. 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 beginning in 2014. We cannot predict what health care programs and regulations will be ultimately
implemented at the federal or state level, or the effect of any future legislation or regulation. However, any changes that lower
reimbursement for our products or reduce medical procedure volumes could adversely affect our business and results of operations.
Our self-insurance program may not be adequate to cover future losses.
We have elected to self-insure most of our insurable risks. We made this decision based on conditions in the insurance marketplace
that have led to increasingly higher levels of self-insurance retentions, increasing numbers of coverage limitations, and dramatically
higher insurance premium rates. We maintain a directors and officers policy providing limited coverage and continue to monitor
the insurance marketplace to evaluate the value to us of obtaining insurance coverage for other categories of losses in the future.
While based on historical loss trends we believe that our self-insurance program accruals and our existing insurance coverage will
be adequate to cover future losses, we cannot guarantee that this will remain true. Historical trends may not be indicative of future
losses. The fact that we don't maintain third-party insurance coverage for all categories of losses increases our exposure to
unanticipated claims and these losses could have a material adverse impact on our consolidated earnings, financial condition, and/
or cash flows.
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