Aetna 2012 Annual Report Download - page 79

Annual Report- Page 73
2011 and 2012 and magnified by Health Care Reform and other legislation and regulations (such as rate reviews
and limits on premium rate increases) that limit our ability to price for our projected and/or experienced increases in
such utilization and/or trend. Refer to our discussion of “Critical Accounting Estimates - Health Care Costs
Payable” beginning on page 22 for more information.
Any requirement to restate financial results due to the inappropriate application of accounting principles or
other matters or a significant failure of internal control over financial reporting could also have a material
adverse effect on us and/or the trading price of our common stock.
The appropriate application of accounting principles in accordance with GAAP is required to ensure the soundness
and accuracy of our financial statements. An inappropriate application of these principles or a significant failure of
internal control over financial reporting may lead to a restatement of our financial results and/or a deterioration in
the soundness and accuracy of our reported financial results. If we experienced such a deterioration, users of our
financial statements might lose confidence in our reported results, which could adversely affect the trading price of
our common stock, our credit ratings and/or our access to capital markets.
We outsource and obtain PBM services and certain information technology systems and other services from
independent third parties and also delegate selected functions to independent practice associations and
specialty service providers; portions of our operations are subject to their performance.
We take steps to monitor and regulate the performance of independent third parties who provide PBM services,
systems-related or other services or facilities to us or to whom we delegate selected functions. Certain of these third
parties provide us with significant portions of our requirements. These third parties include CVS Caremark,
information technology system providers, independent practice associations, accountable care organizations and
call center and claim and billing service providers. These arrangements may make our operations vulnerable if
those third parties fail to meet their contractual obligations to us or to comply with applicable laws or regulations,
whether because of our failure to adequately monitor and regulate their performance, or changes in their own
financial condition or other matters outside our control. This exposure is particularly heightened in our Medicare,
Medicaid and dual eligible programs, where we could have liability for or suffer penalties due to the noncompliance
of such third parties. For more information on these matters, see “Our business activities are highly regulated;
Health Care Reform as well as new laws or regulations or changes in existing laws or regulations or their
enforcement or application could materially adversely affect our business and operating results” beginning on page
57. A termination of our agreements with one or more of these service providers could result in reduced service
quality and effectiveness, inability to meet our obligations to our customers or less favorable contract terms, any of
which can adversely affect our business, reputation and/or operating results.
Under the PBM Agreement, CVS Caremark provides certain PBM services to us and our customers and members.
The PBM Agreement is for a term of up to 12 years (commencing July 27, 2010), although we have certain
termination rights beginning in January, 2018. CVS Caremark began providing services under the PBM Agreement
on January 1, 2011. Our operating results would be adversely affected if we cannot successfully implement the
PBM Agreement on a timely basis and in a cost-efficient manner and/or cannot achieve projected operating
efficiencies for the agreement. In addition, if the PBM Agreement were to terminate for any reason or CVS
Caremark's ability to perform its obligations under the PBM Agreement were impaired, we may not be able to find
an alternative supplier in a timely manner or on acceptable financial terms. As a result, our costs may increase, we
would not realize the anticipated benefits of the PBM Agreement, and we may not be able to meet the full demands
of our customers, any of which could have a material adverse effect on our business, reputation and/or operating
results. Similarly, a subsidiary of ESI provides certain PBM services to Coventry under two agreements, one of
which expires January 1, 2016, and one of which expires January 1, 2017.
In addition, certain of our vendors have been responsible for releases of sensitive information of our members and
employees, which has caused us to incur additional expenses and given rise to litigation against us. Certain
legislative authorities have in recent years also discussed or proposed legislation that would restrict outsourcing
and, if enacted, could materially increase our costs. We also could become overly dependent on key vendors, which
could cause us to lose core competencies if not properly monitored. In recent years, certain third parties to whom
we delegated selected functions, such as independent practice associations and specialty services providers, have