Cigna 2015 Annual Report Download - page 56

PART I
ITEM 1A. Risk Factors
including kickbacks for referral of members, billing for unnecessary metropolitan area that employ physicians and other health care
medical services, improper marketing, and violations of patient professionals. As a direct employer of health care professionals and as
privacy rights. The regulations and contractual requirements an owner or operator of medical facilities, we are subject to liability for
applicable to us are complex and subject to change. In addition, negligent acts, omissions, or injuries occurring at one of these clinics
ongoing vigorous law enforcement, a highly technical regulatory or caused by one of our employees. Even if any claims brought against
scheme and the Dodd-Frank Act legislation and related regulations us are unsuccessful or without merit, we still have to defend against
being adopted to enhance regulators’ enforcement powers and such claims. The defense of any actions may result in significant
whistleblower incentives and protections mean that our compliance expenses that could have a material adverse effect on our business,
efforts in this area will continue to require significant resources. results of operations, financial condition, liquidity and reputation.
Failure of our prevention, detection or control systems related to
regulatory compliance or the failure of employees to comply with our
Significant stock market or interest rate declines
internal policies including data systems security or unethical conduct
could result in additional unfunded pension
by managers and employees, could adversely affect our reputation and
obligations resulting in the need for additional plan
also expose us to litigation and other proceedings, fines and penalties.
funding by us and increased pension expenses.
In addition, provider or customer fraud that is not prevented or We currently have unfunded obligations in our frozen pension plans.
detected could impact our medical costs or those of our self-insured A significant decline in the value of the plans’ equity and fixed income
customers. Further, during an economic downturn, we may investments or unfavorable changes in applicable laws or regulations
experience increased fraudulent claims volume that may lead to could materially increase our expenses and change the timing and
additional costs due to an increase in disputed claims and litigation. amount of required plan funding. This could reduce the cash available
to us, including our subsidiaries. We also are exposed to interest rate
Our pharmacy benefit management business and
and equity risk associated with our pension and other post-retirement
related operations are subject to a number of risks
obligations. Sustained declines in interest rates could have an adverse
and uncertainties that are in addition to those we
impact on the funded status of our pension plans and our
face in our health care business. reinvestment yield on new investments. See Note 9 to our
Consolidated Financial Statements for more information on our
Notwithstanding our pharmacy benefits management services obligations under the pension plan.
arrangement with a third-party vendor, we remain responsible to
regulators and our clients and customers for the delivery of those
Significant changes in market interest rates affect the
pharmacy benefit management services that we contract to provide.
value of our financial instruments that promise a
This business is subject to federal and state regulation, including
fixed return or benefit and the value of particular
federal and state anti-remuneration laws, ERISA, HIPAA and laws
related to the operation of Internet and mail-service pharmacies. In
assets and liabilities.
addition, certain of our subsidiaries are pharmacies subject to state As an insurer, we have substantial investment assets that support
licensing and U.S. Drug Enforcement Agency registration insurance and contractholder deposit liabilities. Generally low levels
requirements and laws concerning labeling, packaging, advertising of interest rates on investments, such as those experienced in U.S. and
and adulteration of prescription drugs and dispensing of controlled foreign financial markets during recent years, have negatively
substances. Noncompliance with such regulations by us or our third- impacted our level of investment income earned in recent periods.
party vendor(s) could have material adverse effects on our business,
results of operations, financial condition, liquidity and reputation. Substantially all of our investment assets are in fixed interest-yielding
debt securities of varying maturities, fixed redeemable preferred
Our pharmacy benefit management business also would be adversely securities and commercial mortgage loans. The value of these
affected by an inability to contract on favorable terms with investment assets can fluctuate significantly with changes in market
pharmaceutical manufacturers and we could suffer liability exposure conditions. A rise in interest rates would likely reduce the value of our
and reputational harm in connection with purported errors by mail investment portfolio and increase interest expense if we were to access
order or retail pharmacy businesses. our available lines of credit.
In operating onsite clinics and other types of medical A downgrade in the financial strength ratings of our
facilities, we may be subject to additional liability insurance subsidiaries could adversely affect new sales
that could result in significant time and expense. and retention of current business, and a downgrade
In addition to contracting with physicians and other health care
in our debt ratings would increase the cost of
providers for services, we employ physicians and other health care
borrowed funds and negatively affect our ability to
professionals at onsite low acuity and primary care clinics that we
access capital.
operate for our customers, as well as certain clinics for our employees.
Financial strength, claims paying ability and debt ratings by
In addition, our Government business operates LivingWell health
recognized rating organizations are each important factors in
centers and we own and operate multispecialty health care centers, low
establishing the competitive position of insurance and health benefits
acuity clinics and other types of centers in the Phoenix, Arizona
26 CIGNA CORPORATION - 2015 Form 10-K