Aetna 2015 Annual Report Download - page 62

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Our business is subject to extensive regulation and oversight by state, federal and international governmental
authorities. The laws and regulations governing our operations and interpretations of those laws and regulations are
increasing in number and complexity, change frequently (as evidenced by Health Care Reform and administrative
changes in, and pending litigation regarding, the implementation of Health Care Reform as well as other new
federal and state laws and regulations), can be inconsistent or conflicting and generally are designed to benefit and
protect members and providers rather than us or our investors. In addition, the governmental authorities that
administer our business have broad latitude to make, interpret and enforce the laws and regulations that govern us
and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year.
Our Medicare, Medicaid, dual eligible, Public Exchange, specialty pharmacy and mail order pharmacy products are
more highly regulated than our other Health Care products. The laws and regulations governing participation in
Medicare, Medicaid and dual eligible programs are complex, are subject to interpretation and can expose us to
penalties for non-compliance, including penalties under the False Claims Act and state false claims acts. In addition,
Health Care Reform may have expanded the jurisdiction of, and our exposure to, the False Claims Act to products
sold on Public Exchanges, which began to operate in 2014. Claims under federal and state false claims acts can be
brought by the government or by private individuals on behalf of the government through a qui tam or
“whistleblower” suit. If we are convicted of fraud or other criminal conduct in the performance of a health program
or if there is an adverse decision against us under the False Claims Act, we may be temporarily or permanently
suspended from participating in government health care programs, including Medicare, Medicaid and dual eligible
programs.
If we fail to comply with laws and regulations that apply to government programs, we could be subject to criminal
fines, civil penalties, premium refunds, prohibitions on marketing or active or passive enrollment of members,
corrective actions, termination of our contracts or other sanctions which could have a material adverse effect on our
ability to participate in Medicare, Medicaid, dual eligible and other programs, cash flows, financial position and
operating results. For example, CMS assessed a civil monetary penalty of $1 million against us in 2015 for
distributing inaccurate information regarding which pharmacies were part of our Medicare network. Also, from
April 2010 through June 2011, we were subject to intermediate sanctions that CMS imposed on us that required us
to suspend the enrollment of and marketing to new members of all Aetna Medicare Advantage and PDP contracts.
As a result of these sanctions, our 2011 Medicare membership and operating results were adversely affected
because we did not participate in the annual enrollment process for 2011 and were not again eligible to receive
automatic assignments of low income subsidy PDP members from CMS until September 2012.
Our exposure to these risks will increase significantly following the completion of the Proposed Acquisition
because completion of the Proposed Acquisition will increase significantly the proportion of our total Health Care
revenues, membership and medical costs that are derived from Medicare, Medicaid and dual eligible products.
Our products providing PBM and specialty and mail order pharmacy services are subject to:
• The risks inherent in the dispensing, packaging and distribution of pharmaceuticals and other health care
products, including claims related to purported dispensing and other operational errors (any failure by us or
one of our PBM services suppliers to adhere to the laws and regulations applicable to the dispensing of
pharmaceuticals could subject our PBM and/or pharmacy subsidiaries to civil and criminal penalties).
• Federal and state anti-kickback and other laws that govern our relationship with pharmaceutical
manufacturers, customers and consumers.
• Compliance requirements under ERISA, including fiduciary obligations in connection with the
development and implementation of items such as drug formularies and preferred drug listings.
• Federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy
benefit industry practices, including the management and breadth of provider networks, the regulation of
the development and use of drug formularies (such as the 2014 regulatory activity requiring us and certain
other payors to place certain high cost drugs in preferred positions in our drug formularies) and/or
maximum allowable cost list pricing, legislation, regulations or regulatory activity imposing additional
rights to access to drugs for individuals enrolled in health care benefit plans or reducing the cost of such
drugs to those individuals, the receipt or required disclosure of rebates from pharmaceutical manufacturers,
and restrictions on the use of average wholesale prices.