Aetna 2015 Annual Report Download - page 46

Annual Report- Page 40
Notwithstanding our contracting with our PBM services suppliers, we remain responsible to regulators and
members for the delivery of PBM services. In addition, we continue to operate two mail order pharmacy facilities
and one specialty pharmacy facility (our “Pharmacies”) and utilize certain pharmacies of our PBM services
suppliers. Our Pharmacies dispense pharmaceuticals throughout the U.S. and are participating providers in
Medicare, Medicare Part D and various Medicaid programs. The pharmacy practice is generally regulated at the
state level by state boards of pharmacy. Our Pharmacies are required to be licensed in the state where they are
located, as well as the states that require registration or licensure of mail order pharmacies with the state’s board of
pharmacy or similar regulatory body. Our Pharmacies also must register with the U.S. Drug Enforcement
Administration and individual state controlled substance authorities in order to dispense controlled substances and
must comply with applicable Medicare, Medicaid and other provider rules and regulations, including the False
Claims Act, state false claims acts and federal and state anti-kickback laws. Our PBM services suppliers’ owned and
contracted pharmacies are subject to these same licensing requirements and other laws and regulations. The loss or
suspension of any such licenses or registrations could have a material adverse effect on our ability to meet our
contractual obligations to our customers, which could, in turn, have a material adverse effect on our pharmacy
business and/or operating results.
Regulation of Pharmacy Benefit Management Operations
Our PBM services are regulated directly and indirectly at the federal and state levels, including being subject to the
False Claims Act and state false claims acts and federal and state anti-kickback laws. These laws and regulations
govern, and proposed legislation and regulations may govern, critical PBM practices, including disclosure, receipt
and retention of rebates and other payments received from pharmaceutical manufacturers; use of, administration of,
and/or changes to drug formularies, maximum allowable cost list pricing, average wholesale prices and/or clinical
programs; disclosure of data to third parties; drug utilization management practices; the level of duty a PBM owes
its customers; configuration of pharmacy networks; the operations of our Pharmacies (including audits of our
Pharmacies); disclosure of negotiated provider reimbursement rates; disclosure of fees associated with
administrative service agreements and patient care programs that are attributable to members’ drug utilization; and
registration or licensing of PBMs. Failure by us or one of our PBM services suppliers to comply with these laws or
regulations could result in material fines and/or sanctions and could have a material adverse effect on our operating
results.
Life and Disability Insurance
Our life and disability insurance operations are subject to extensive regulation. Changes in these regulations, such
as expanding the definition of disability or mandating changes to claim payment, determination and/or settlement
practices, could have a material adverse impact on our life insurance and/or disability insurance operations and/or
operating results. Since 2011, legislation has been enacted or introduced in a number of states requiring life insurers
to take additional steps to identify unreported deceased policy holders, and make other changes to their claim
payment and related escheat practices, including consultation of certain databases. A significant number of states
are investigating life insurers’ claims payment and related escheat practices, and these investigations have resulted
in significant charges to earnings by other life insurers in connection with related settlement agreements. We have
received requests for information from a number of states, and certain of our subsidiaries are being audited, with
respect to our life insurance claim payment and related escheat practices. In the fourth quarter of 2013, we made
changes to our life insurance claim payment practices (including related escheatment practices) based on evolving
industry practices and regulatory expectations and interpretations, including expanding our existing use of the
Social Security Administration’s Death Master File to identify additional potentially unclaimed death benefits and
locate applicable beneficiaries. As a result of these changes, in the fourth quarter of 2013, we increased our
estimated liability for unpaid life insurance claims with respect to insureds who passed away on or before
December 31, 2013, and recorded in current and future benefits a charge of $35.7 million ($55.0 million pretax).
Given the judicial, legislative and regulatory uncertainty with respect to life insurance claim payment and related
escheat practices, it is reasonably possible that we may incur additional liability related to those practices, whether
as a result of further changes in our business practices, litigation, government actions or otherwise, which could
adversely affect our operating results and cash flows.