Health Net 2001 Annual Report Download - page 25

health care services. See ‘‘Government Contracts and Specialty Services Segment—Business
Transformation and Innovation Services—Innovation Services’’ for a description of certain of our
Internet initiatives.
There can be no assurance that we will be able to recognize or capitalize on the Internet-related
opportunities or technologies that ultimately prove to be accepted and effective within the managed
care industry, the provider communities and/or among consumers. There can also be no assurance that
new technologies invested in or developed by us or our business partners will prove operational; that
they will be accepted by consumers, providers or business partners; that they will achieve their intended
results; that we will recoup our investment in Internet-related technologies or related ventures; or that
other technologies will not be more accepted or prove more effective. In addition, we contract with and
rely upon third parties for certain Internet-related content, tools and services. We have also contracted
to establish links between our websites and third party websites. Any failure by those third parties to
perform in accordance with the terms of their agreements or to comply with applicable law could
adversely impact our Internet operations and services, and could expose us to liability.
MEDICAL MANAGEMENT. Our profitability is dependent, to a large extent, upon our ability to
manage health care costs. Our ability to manage costs depend, in turn, on a number of factors,
including, without limitation, our degree of success in making accurate cost projections, achieving
appropriate benefit design, employing utilization review and case management programs, and securing
appropriate risk-sharing arrangements with providers while providing members with quality health care.
For example, high out-of-network utilization of health care providers and services may have significant
adverse effects on our ability to manage health care costs and member utilization of health care. There
can be no assurance that we will be able to continue to manage medical costs sufficiently to maintain
profitability in our product lines.
MANAGEMENT INFORMATION SYSTEMS. Our business depends significantly on effective
information systems. The information gathered and processed by our management information systems
assists us in, among other things, pricing our services, monitoring utilization and other cost factors,
processing provider claims, billing our customers on a timely basis and identifying accounts for
collection. Our customers and providers also depend upon our information systems for membership
verification, claims status and other information. We have many different information systems for our
various businesses and these systems require continual maintenance, upgrading and enhancement to
meet our operational needs. Moreover, our merger, acquisition and divestiture activity requires
frequent transitions to or from, and the integration of, various information management systems. We
are in the process of attempting to reduce the number of our systems, to upgrade and expand our
information systems capabilities, and to obtain and develop new, more efficient information systems.
Any difficulty associated with the transition to or from information systems, any inability or failure to
properly maintain management information systems, or any inability or failure to successfully update or
expand processing capability or develop new capabilities to meet our business needs, could result in
operational disruptions, loss of existing customers, difficulty in attracting new customers, disputes with
customers and providers, regulatory problems, increases in administrative expenses and/or other adverse
consequences. In addition, we may, from time-to-time, obtain significant portions of our systems-related
or other services or facilities from independent third parties which may make our operations vulnerable
to adverse effects if such third parties fail to perform adequately.
COMPETITION. We compete with a number of other entities in the geographic and product
markets in which we operate, some of which other entities may have certain characteristics, capabilities
or resources that give them an advantage in competing with us. These competitors include HMOs,
PPOs, self-funded employers, insurance companies, hospitals, health care facilities and other health
care providers. In addition, financial services or other technology-based companies could enter the
market and compete with us on the basis of their stream-lined administrative functions. We believe
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