Aetna 2011 Annual Report Download - page 45

Annual Report- Page 39
Fraud, Waste and Abuse Laws
Federal and state governments have made investigating and prosecuting health care fraud, waste and abuse a
priority. Fraud, waste 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, waste and abuse investigations, as well as False Claims Act lawsuits by whistle blowers and others. In
addition, Health Care Reform expanded the jurisdiction of, and our exposure to, the False Claims Act to Insurance
Exchanges, which will begin to operate in 2014. The regulations and contractual requirements applicable to us and
other participants in these public-sector programs are complex and subject to change. We have invested significant
resources to comply with Medicare and Medicaid standards. Ongoing vigorous law enforcement and the highly
technical regulatory scheme mean that our compliance efforts in this area will continue to require significant
resources.
Product Design and Sales Practices
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. Medicare and Medicaid products and products offering more
limited benefits, such as those we issue and sell through Strategic Resource Company and some of our student
health plans, in particular are attracting 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. These
laws are administered by state health insurance guaranty associations in which we and other insurers participate.
These health insurance guaranty associations respond to insolvencies of long-term care insurers as well as health
insurers. Our assessments generally are based on a formula relating to our premiums in the state compared to the
premiums of other insurers. Certain states allow assessments to be recovered as offsets to premium taxes. Some
states have similar laws relating to HMOs. The Pennsylvania Insurance Commissioner has placed long-term care
insurer Penn Treaty Network America Insurance Company and one of its subsidiaries (collectively, “Penn Treaty”)
in rehabilitation, an intermediate action before insolvency, and has petitioned a state court for liquidation. We
cannot predict when a decision will be made, although we believe it is likely that the state court will rule within the
next twelve months. If Penn Treaty is declared insolvent and placed in liquidation, we and other insurers likely
would be assessed over a period of years by guaranty associations for the payments the guaranty associations are
required to make to Penn Treaty policyholders. We are currently unable to predict the ultimate outcome of, or
reasonably estimate the loss or range of losses resulting from, this potential insolvency because we cannot predict
when the state court will render a decision, the amount of the insolvency, if any, the amount and timing of
associated guaranty association assessments or the amount or availability of potential offsets, such as premium tax
offsets. It is reasonably possible that in future reporting periods we may record a liability and expense relating to
Penn Treaty or other insolvencies which could have a material adverse effect on our operating results, financial
position and cash flows. While we have historically recovered more than half of guaranty fund assessments through
statutorily-permitted premium tax offsets, significant increases in assessments could lead to legislative and/or
regulatory actions that may limit future offsets.
Regulation of Pharmacy Operations
On July 27, 2010, we entered into the PBM Agreement, under which CVS Caremark provides certain pharmacy
benefit management ("PBM") services to us and our customers and members. The PBM Agreement has a term of
up to 12 years, although we have certain termination rights beginning in January 2018. CVS Caremark began
providing services under the PBM Agreement on January 1, 2011. Notwithstanding our contracting with CVS
Caremark, we will remain responsible to regulators and members for the delivery of PBM services. In addition, we
continue to own two mail order pharmacy facilities and one specialty pharmacy facility (our “Pharmacies”) and
utilize certain CVS Caremark pharmacies. One mail order pharmacy is located in Missouri, and the specialty
pharmacy and our second mail order pharmacy are located in Florida. Our Pharmacies dispense pharmaceuticals