Health Net 2005 Annual Report Download - page 123

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We intend to defend ourselves vigorously in this litigation. These proceedings are subject to many
uncertainties, and, given their complexity and scope, their final outcome cannot be predicted at this time. It is
possible that in a particular quarter or annual period our results of operations and cash flow could be materially
affected by an ultimate unfavorable resolution of these proceedings or the incurrence of substantial legal fees or
discovery expenses during the pendency of the proceedings depending, in part, upon the results of operations or
cash flow for such period. However, at this time, management believes that the ultimate outcome of these
proceedings should not have a material adverse effect on our financial condition and liquidity.
In Re Managed Care Litigation
Various class action lawsuits against managed care companies, including us, were transferred by the Judicial
Panel on Multidistrict Litigation (“JPML”) to the United States District Court for the Southern District of Florida
for coordinated or consolidated pretrial proceedings in In re Managed Care Litigation, MDL 1334. This
proceeding was divided into two tracks, the subscriber track, comprising actions brought on behalf of health plan
members, and the provider track, comprising actions brought on behalf of health care providers. On
September 19, 2003, the Court dismissed the final subscriber track action involving us, The State of Connecticut
v. Physicians Health Services of Connecticut, Inc. (filed in the District of Connecticut on September 7, 2000), on
grounds that the State of Connecticut lacked standing to bring the ERISA claims asserted in the complaint. That
same day, the Court ordered that the subscriber track be closed “in light of the dismissal of all cases in the
Subscriber Track.” The State of Connecticut appealed the dismissal order to the Eleventh Circuit Court of
Appeals and on September 10, 2004, the Eleventh Circuit affirmed the District Court’s dismissal. On
February 22, 2005, the Supreme Court of the United States denied plaintiffs’ Petition for Writ of Certiorari on the
Eleventh Circuit’s decision to uphold the dismissal.
The provider track includes the following actions involving us: Shane v. Humana, Inc., et al. (including
Health Net, Inc.) (filed in the Southern District of Florida on August 17, 2000 as an amendment to a suit filed in
the Western District of Kentucky), California Medical Association v. Blue Cross of California, Inc., PacifiCare
Health Systems, Inc., PacifiCare Operations, Inc. and Foundation Health Systems, Inc. (filed in the Northern
District of California in May 2000), Klay v. Prudential Ins. Co. of America, et al. (including Foundation Health
Systems, Inc.) (filed in the Southern District of Florida on February 22, 2001 as an amendment to a case filed in
the Northern District of California), Connecticut State Medical Society v. Physicians Health Services of
Connecticut, Inc. (filed in Connecticut state court on February 14, 2001), Lynch v. Physicians Health Services of
Connecticut, Inc. (filed in Connecticut state court on February 14, 2001), Sutter v. Health Net of the Northeast,
Inc. (filed in New Jersey state court on April 26, 2002), Medical Society of New Jersey v. Health Net, Inc., et al.,
(filed in New Jersey state court on May 8, 2002), Knecht v. Cigna, et al. (including Health Net, Inc.) (filed in the
District of Oregon in May 2003), Solomon v. Cigna, et. al. (including Health Net, Inc.) (filed in the Southern
District of Florida on October 17, 2003), Ashton v. Health Net, Inc., et al. (filed in the Southern District of
Florida on January 20, 2004), and Freiberg v. UnitedHealthcare, Inc., et al. (including Health Net, Inc.) (filed in
the Southern District of Florida on February 24, 2004). These actions allege that the defendants, including us,
systematically underpaid providers for medical services to members, have delayed payments to providers,
imposed unfair contracting terms on providers, and negotiated capitation payments inadequate to cover the costs
of the health care services provided and assert claims under the Racketeer Influenced and Corrupt Organizations
Act (RICO), ERISA, and several state common law doctrines and statutes. Shane, the lead physician provider
track action, asserts claims on behalf of physicians and seeks certification of a nationwide class. The Knecht,
Solomon, Ashton and Freiberg cases all are brought on behalf of health care providers other than physicians and
seek certification of a nationwide class of similarly situated health care providers. Other than Shane, all provider
track actions involving us have been stayed.
On May 3, 2005, we and the representatives of approximately 900,000 physicians and state and other
medical societies announced that we had signed an agreement settling Shane, the lead physician provider track
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