Aetna 2008 Annual Report Download - page 36

Annual Report - Page 31
discontinue the use of the Ingenix database at a future date. We currently use the Ingenix database to determine
reimbursement rates when our members utilize providers who do not have a contract with us. Refer to Litigation and
Regulatory Proceedings in Note 18 of Notes to Consolidated Financial Statements beginning on page 77 for more
information.
Federal and state governments have made investigating and prosecuting health care fraud and abuse a
priority. Fraud and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of
members, billing for unnecessary medical services, improper marketing, and violations of patient privacy
rights. Companies involved in public health care programs such as Medicare and Medicaid are often the subject of
fraud and abuse investigations. The regulations and contractual requirements applicable to us and other participants
in these public-sector programs are complex and subject to change. Although we believe our compliance efforts are
adequate, ongoing vigorous law enforcement and the highly technical regulatory scheme mean that our compliance
efforts in this area will continue to require significant resources.
State and/or federal regulatory scrutiny of life and health insurance company and HMO marketing and advertising
practices, including the adequacy of disclosure regarding products and their administration, is increasing as are the
penalties being imposed for inappropriate practices. Products offering limited benefits, such as those we issue and
sell through Strategic Resource Company, which we acquired in January 2005, in particular may attract increased
regulatory scrutiny.
Guaranty Fund Assessments/Solvency Protection
Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (up to
prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants.
Assessments generally are based on a formula relating to our premiums in the state compared to the premiums of
other insurers. While we historically have recovered more than half of guaranty fund assessments through statutorily
permitted premium tax offsets, significant increases in assessments could jeopardize future recovery of these
assessments. Some states have similar laws relating to HMOs. In addition, changes to regulations or their
interpretation due to regulators’ increasing concerns regarding insurance company and/or HMO solvency due,
among other things, to the current economic downturn, could negatively impact our business in various ways,
including through increases in solvency fund assessments, requirements that the Company hold greater levels of
capital and/or delays in approved dividends from regulated subsidiaries.
Regulation of Pharmacy Operations
We own two mail-order pharmacy facilities and one specialty pharmacy facility. One mail order pharmacy is
located in Missouri and the specialty pharmacy and our second mail order pharmacy are located in Florida. These
facilities dispense pharmaceuticals throughout the U.S. The pharmacy practice is generally regulated at the state
level by state boards of pharmacy. Our pharmacies also must register with the U.S. Drug Enforcement
Administration and individual state controlled substance authorities in order to dispense controlled substances. Each
of our pharmacies is licensed in the state where it is located, as well as in the states that require registration or
licensure with the state’ s board of pharmacy or similar regulatory body. Loss or suspension of any such licenses or
registrations could have a material effect on our pharmacy business and/or operating results.
Regulation of Pharmacy Benefit Management Operation
Our pharmacy benefit management (“PBM”) operation is regulated directly and indirectly at the federal and state
levels. These laws and regulations govern, and proposed legislation may govern, critical PBM practices, including
disclosure, receipt and retention of rebates and other payments received from pharmaceutical manufacturers, drug
utilization management practices, the level of duty a PBM owes its customers and registration or licensing of PBMs.
Failure to comply with these laws or regulations could have a material effect on our PBM operation and/or operating
results.