Aetna 2011 Annual Report Download - page 59

Annual Report- Page 53
members of all Aetna Medicare Advantage and Standalone PDP contracts. The sanctions related to our compliance
with certain Medicare Part D requirements. CMS lifted those sanctions on June 13, 2011, however CMS still is not
assigning any new low income subsidy members to our PDPs at this time. Refer to “Regulatory Environment”
beginning on page 25 for more information.
Federal and state governments have made investigating and prosecuting health care and other insurance 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. The regulations and contractual requirements applicable to us and other participants are
complex and subject to change. We have invested significant resources to comply with our regulatory and
contractual requirements. Ongoing vigorous law enforcement and the highly technical regulatory scheme mean that
our compliance efforts in this area will continue to require significant resources.
We face increasing risks related to litigation, regulatory audits and investigations and other regulatory
proceedings. In addition, as a government contractor, we are exposed to additional risks that may adversely
affect our business or our willingness to participate in government health care programs. If these matters
are resolved adversely to us or these risks materialize, our financial position, operating results and cash flows
could be adversely affected.
We are growing by expanding into certain segments and subsegments of the health care marketplace. Some of the
segments and subsegments we have targeted for growth include Medicare, Medicaid, individual, public sector and
certain labor customers who are not subject to ERISA's limits on state law remedies. In addition, over the last
several years we have entered product lines in which we previously did not participate, including HIT (such as
Medicity and ActiveHealth), support services for accountable care organizations, Insured Medicaid, Medicaid
management and care coordination and care management on behalf of state regulators, international managing
general underwriting, Medicare PDP, mail order pharmacy and specialty pharmacy. We also significantly expanded
our Medicare Supplement, HSA and FSA and low cost claims administration businesses through acquisitions in
2011. These products subject us to litigation, regulatory and other risks that are different from the risks of
providing Commercial managed care and health insurance products and may increase the risks we face from
intellectual property and other litigation, regulatory reviews, audits and investigations and other adverse legal
proceedings. For example, our Medicare and Medicaid products are more highly regulated than our Commercial
products, and our mail order and specialty pharmacies dispense medications directly to members. There is the
possibility of temporary or permanent suspension from participating in government health care programs, including
Medicare and Medicaid, including if we do not comply with program rules or are convicted of fraud or other
criminal conduct in the performance of a health care program or if there is an adverse decision against us under the
False Claims Act. For example, effective April 21, 2010, CMS imposed intermediate sanctions on us, suspending
the enrollment of and marketing to new members of all Aetna Medicare Advantage and Standalone PDP contracts.
These sanctions remained in place until June 13, 2011. Any similar suspensions could adversely affect our other
businesses, including by harming our reputation. In addition to the risks of purported dispensing and other
operational errors, failure to adhere to the laws and regulations applicable to the dispensing of pharmaceuticals
could subject our pharmacy subsidiaries to civil and criminal penalties.
In addition, we are routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal
proceedings arising in the ordinary course of our businesses. Certain of these lawsuits are purported to be class
actions. The majority of these cases relate to the conduct of our health care operations and allege various violations
of law. Many of these cases seek substantial damages (including non-economic or punitive damages and treble
damages) and may also seek changes in our business practices. We may also be subject to additional litigation and
other adverse legal proceedings in the future. Litigation and other adverse legal proceedings could materially
adversely affect our business or operating results because of reputational harm to us caused by such proceedings,
the costs of defending such proceedings, the costs of settlement or judgments against us, or the changes in our
operations that could result from such proceedings. For example, during 2009, Aetna and the New York Attorney
General announced an agreement relating to an industry-wide investigation into certain payment practices with
respect to out-of-network providers. Among other things, the agreement required Aetna to contribute $20 million
towards the establishment of an independent database system to provide fee information regarding out-of-network