Aetna 2013 Annual Report Download - page 63

Annual Report- Page 57
vendors. International laws, rules and regulations governing the use and disclosure of such information are
generally more stringent than in the U.S., and they vary from jurisdiction to jurisdiction.
Our business depends on our members' and customers' willingness to entrust us with their health related and other
sensitive information. Events that negatively affect that trust, including failing to keep our information technology
systems and our members' and customers' sensitive information secure from attack, damage, loss or unauthorized
disclosure or access, whether as a result of our action or inaction or that of our business associates or vendors,
including our PBM services suppliers, could adversely affect our reputation, membership and revenues and also
expose us to mandatory disclosure to the media, litigation (including class action litigation) and other enforcement
proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory
damages, consent orders, adverse actions against our licenses to do business and/or injunctive relief, any of which
could adversely affect our business, cash flows, operating results or financial condition.
We are subject to retroactive adjustments to certain premiums and fees, including as a result of CMS RADV
audits. We generally rely on health care providers to appropriately code claim submissions and document their
medical records. If these records do not appropriately support our risk adjusted premiums, CMS may require us
to refund premium payments.
Premiums and/or fees for Medicare members, certain federal government employee groups and Medicaid
beneficiaries are subject to retroactive adjustments by the federal and applicable state governments. CMS regularly
audits our performance to determine our compliance with CMS's regulations and our contracts with CMS and to
assess the quality of the services we provide to our Medicare members.
CMS uses various payment mechanisms to allocate and adjust premiums paid to Medicare Advantage plans
according to their members' health status as supported by data prepared by health care providers and submitted by
us. We generally rely on providers to appropriately code their submissions and document their medical records.
Based on the health care data we submit and member demographic data, CMS determines the risk score and the
payments we receive.
CMS performs RADV audits to validate coding practices and supporting medical record documentation maintained
by health care providers. CMS may require us to refund premium payments if our risk adjusted premiums are not
properly supported by medical record data. We believe that the OIG also is auditing risk adjustment data, and we
expect CMS and the OIG to continue auditing risk adjustment data for the 2011 contract year and beyond.
CMS is using a new audit methodology for RADV audits to determine refunds payable by Medicare Advantage
plans for contract year 2011 and forward. Under the new methodology, among other things, CMS will project the
error rate identified in the audit sample of approximately 200 members to all risk adjusted premium payments made
under the contract being audited. Historically, CMS did not project sample error rates to the entire contract. As a
result, the new methodology may increase our exposure to premium refunds to CMS based on incomplete medical
records maintained by providers.
During 2013, CMS selected certain of our Medicare Advantage contracts for contract year 2011 for audit. We are
currently unable to predict which of our Medicare Advantage contracts will be selected for future audit, the amounts
of any retroactive refunds of, or prospective adjustments to, Medicare Advantage premium payments made to us,
the effect of any such refunds or adjustments on the actuarial soundness of our Medicare Advantage bids, or
whether any RADV audit findings would require us to change to our method of estimating future premium revenue
in future bid submissions to CMS or compromise premium assumptions made in our bids for prior contract years or
the current contract year. For additional information, refer to “Regulatory Environment - Medicare” beginning on
page 38.
Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of RADV or other
audits by CMS, the OIG or otherwise, could be material and could adversely affect our operating results, financial
position and cash flows. For more information see “Regulatory Environment” beginning on page 29.