Aetna 2011 Annual Report Download - page 52

Annual Report- Page 46
business model. Accomplishing these strategic objectives will require us to simultaneously acquire and develop
new personnel, products and systems to serve existing and new markets and enhance our existing information
technology, control and compliance processes and systems to deliver the new products and, in the case of
international operations, meet country-specific customer and member preferences as well as country-specific legal
requirements, including those relating to data storage location, protection and security. Accomplishing these
objectives will require us to devote significant senior management and other resources to acquisitions or other
transactions and to develop new products, services and technology internally before any significant revenues or
earnings are generated. In addition, many of our international and HIT competitors have longer operating histories,
better brand recognition and greater scale in many of the areas in which we are seeking to expand and more
experience at rapidly innovating products. If we are not able to expand our international business in countries
where we currently operate and in targeted new countries and acquire and/or develop and launch products and
services outside of our core Health Care products and services, our ability to profitably grow our business could be
adversely affected.
Our international operations face political, legal and compliance, operational, regulatory, economic and other risks
that we do not face or that are more significant than in our domestic operations. Our exposure to these risks will
increase as our international operations expand. These risks vary widely by country and include government
intervention and censorship, discriminatory regulation, nationalization or expropriation of assets, pricing issues and
currency exchange controls or other restrictions that prevent us from transferring funds from these operations out of
the countries in which they operate or converting local currencies that we hold into U.S. dollars or other currencies.
Additionally, foreign currency exchange rates and fluctuations may have an impact on the future costs of or on
future revenues and cash flows from our international operations, and any measures we may implement to reduce
the effect of volatile currencies and other risks on our international operations may not be effective. Some of our
operations are, and are likely to increasingly be, in emerging markets where these risks are heightened. In addition,
our international business relies on local sales forces and other staff for some of its operations and may encounter
labor laws, labor problems and less flexible employee relationships that can be difficult and expensive to terminate.
In some countries, our international business operates or is required to operate with local business partners with the
resulting risk of managing partner relationships in addition to managing the business to reach business objectives.
International operations also increase our exposure to and require us to devote significant management resources to
comply with the privacy laws of non-U.S. jurisdictions and the anti-bribery, anti-corruption and anti-money
laundering provisions of U.S. (including the Foreign Corrupt Practices Act of 1977 (the “FCPA”)) and United
Kingdom law and similar laws in other jurisdictions and to overcome logistical and other challenges based on
differing languages, cultures, legal and regulatory schemes and time zones.
We are subject to funding and other risks with respect to revenue received from our participation in
Medicare and Medicaid programs. We are also subject to retroactive adjustments to certain premiums,
including as a result of CMS risk adjustment data validation (“RADV”) audits.
We continue to increase our focus on the non-Commercial part of our Health Care segment as part of our business
diversification efforts. In many instances, to acquire and retain our non-Commercial business, we must bid against
our competitors in an increasingly competitive environment, and winning bids increasingly are being challenged
successfully. For the government-funded health program business we obtain, such as Medicare and Medicaid, our
revenues are dependent on annual funding by the federal government and/or applicable state governments, and both
federal and state governments have the right to non-renew or cancel their contracts with us on short notice without
cause or if funds are not available. Funding for these programs is dependent on many factors outside our control,
including general economic conditions and budgetary constraints at the federal or applicable state level and general
political issues and priorities. For example, under Health Care Reform, 2011 Medicare Advantage payment rates to
us were frozen based on 2010 levels with additional reductions over a multiyear period beginning in 2012 based on
regionally adjusted benchmarks, competitive bidding was introduced for Medicare Advantage plans for the 2012
plan year, and our Medicare Advantage plans' profitability is likely to be significantly determined by their "star
ratings" from CMS beginning in 2012. We also may be adversely affected by sequestration of Medicare payments
starting in 2013. In addition, while Health Care Reform will significantly expand the number of people who will
qualify to enroll in Medicaid beginning in 2014, most states currently face significant budget challenges, and
several states are currently seeking to reduce their Medicaid expenditures; other states may take similar action. Our