Cigna 2013 Annual Report Download - page 52

PART I
ITEM 1A. Risk Factors
nature of our business and operations may present challenges in part, on our ability to anticipate these risks and manage these
including, but not limited, to those arising from: difficulties, and the failure to do so could have a material adverse effect
on our business, results of operations, financial condition, liquidity
varying regional and geopolitical business conditions and demands; and long-term growth.
discriminatory regulation, nationalization or expropriation of assets;
price controls or other pricing issues and exchange controls or other
There are various risks associated with participating
restrictions that prevent us from transferring funds from these
in government-sponsored programs such as Medicare,
operations out of the countries in which we operate or converting
including dependence upon government funding,
local currencies that our foreign operations hold into U.S. dollars or
changes occurring as a result of Health Care Reform,
other currencies;
compliance with government contracts and increased
foreign currency exchange rates and fluctuations that may have an
regulatory oversight.
impact on the future costs or on future sales and cash flows from our Through our Cigna-HealthSpring business, we contract with CMS
international operations, and any measures that we may implement and various state governmental agencies to provide managed health
to reduce the effect of volatile currencies and other risks of our care services, including Medicare Advantage plans and Medicare-
international operations may not be effective; approved prescription drug plans. Revenues from the Medicare
our reliance on local sales forces for some operations in countries programs are dependent, in whole or in part, upon annual funding
that may have labor problems and/or less flexible employee from the federal government through CMS and/or applicable state or
relationships that can be difficult and expensive to terminate, or local governments. Funding for these programs is dependent on many
where changes in local regulation or law may disrupt business factors outside our control, including general economic conditions,
operations; continuing government efforts to contain health care costs and
budgetary constraints at the federal or applicable state or local level
effectively managing our partner relationships in countries outside and general political issues and priorities. These entities generally have
of the United States; the right to not renew or cancel their contracts with us on short notice
managing more geographically diverse operations and projects; without cause or if funds are not available. Unanticipated changes in
funding by the federal or state governments could substantially reduce
operating in new foreign markets that may require considerable our revenues and profitability.
management time before operations generate any significant
revenues and earnings; The Medicare program has been the subject of recent regulatory
reform initiatives, including Health Care Reform. The premium rates
the need to provide sufficient levels of technical support in different paid to Medicare Advantage plans are established by contract,
locations; although the rates differ depending on a combination of factors, many
political instability or acts of war, terrorism, natural disasters or of which are outside our control. Effective in 2012, Health Care
pandemics in locations where we operate; and Reform ties a portion of each Medicare Advantage plan’s
reimbursement to the plan’s ‘‘star rating’’ by CMS, with those plans
general economic and political conditions. receiving a rating of three or more stars eligible for quality-based
These factors may increase in significance as we continue to expand bonus payments. The star rating system considers various measures
globally, and any one of these challenges could negatively affect our adopted by CMS, including, among other things, quality of care,
operations or long-term growth. For example, currently, South Korea preventative services, chronic illness management and customer
is the single largest geographic market in our Global Supplemental satisfaction. Beginning in 2015, plans must have a star rating of four
Benefits segment. Due to the concentration of business in South or higher to qualify for bonus payments. Our Medicare Advantage
Korea, the Global Supplemental Benefits segment is exposed to plans’ operating results, premium revenue and benefit offerings are
potential losses resulting from economic, regulatory and geopolitical likely to continue to be significantly determined by their star ratings.
developments in that country, as well as foreign currency movements If we do not maintain or continue to improve our star ratings, our
affecting the South Korean currency, that could have a significant plans may not be eligible for full-level quality bonuses, which could
impact on the segment’s results and our consolidated financial results. adversely affect the benefits that our plans can offer, reduce our
customer base and/or reduce margins.
International operations also require us to devote significant resources
to implement controls and systems in new markets to comply with Contracts with CMS and the various state governmental agencies
U.S. and foreign laws prohibiting bribery, corruption, money contain certain provisions regarding data submission, provider
laundering and similar crimes. Violations of these laws and network maintenance, quality measures, claims payment, continuity
regulations could result in fines, criminal sanctions against us, our of care, call center performance and other requirements. If we fail to
officers or employees, restrictions or outright prohibitions on the comply with these requirements, we may be subject to fines or
conduct of our business, and significant reputational harm. We must penalties that could impact our profitability.
regularly reassess the size, capability and location of our global In addition, any failure to comply with various state and federal health
infrastructure and make appropriate changes, and must have effective care laws and regulations, including those directed at preventing fraud
change management processes and internal controls in place to and abuse in government funded programs, could result in
address changes in our business and operations. Our success depends,
20 CIGNA CORPORATION - 2013 Form 10-K
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