Health Net 2005 Annual Report Download - page 24

Federal and state audits, review and investigations of us and our subsidiaries could have a material adverse
effect on our operations.
We have been and, in some cases, currently are, involved in various federal and state governmental audits,
reviews and investigations. These include routine, regular and special investigations, audits and reviews by CMS,
state insurance and health and welfare departments and others. Such audits, reviews and investigations could
result in the loss of licensure or the right to participate in certain programs, or the imposition of civil or criminal
fines, penalties and other sanctions. In addition, disclosure of any adverse investigation or audit results or
sanctions could negatively affect our reputation in various markets and make it more difficult for us to sell our
products and services.
Many regulatory audits, reviews and investigations in recent years have focused on the timeliness and
accuracy of claims payments by managed care companies and health insurers. Our subsidiaries have been the
subject of audits, reviews and investigations of this nature. Depending on the circumstances and the specific
matters reviewed, regulatory findings could require remediation of claims payment errors and payment of
penalties of material amounts that could have a material adverse effect on our results of operations. For example,
we are currently the subject of a regulatory investigation in New Jersey that relates to the timeliness and accuracy
of our claim payments for services rendered by out of network providers. The New Jersey Department of
Banking and Insurance (“New Jersey DOBI”) has commenced an audit of our claims payment practices for out of
network claims. Depending on the outcome of the audit, the New Jersey DOBI could impose monetary fines or
require remediation of out of network claims payment inaccuracies which could have significant adverse effects
on our business.
Similarly, HN California, our California HMO, is in discussions with the California Department of Managed
Health Care (“DMHC”) regarding our prepayment line item review and repricing processes with respect to the
claims of contracted hospitals for dates of services from and after January 1, 2004. Those discussions are
ongoing, but could result in an administrative penalty, extension of the appeal period for previously paid claims
or other business practice modifications.
Proposed federal and state legislation and regulations affecting the managed health care industry could
adversely affect us.
There are frequently legislative proposals before the United States Congress and state legislatures and
regulatory initiatives at the federal and state levels which, if enacted, could materially affect the managed health
care industry and the regulatory environment. These proposals have included initiatives which, if enacted, could
have significant adverse effects on our operations, including subjecting us to additional litigation risk, regulatory
compliance costs and restrictions on our business operations. Such measures have proposed, among other things,
to:
• require plans participating in the MMA’s prescription drug benefit program to reimburse the states for
costs expended to ensure that “dual eligibles,” or Medicare beneficiaries who are also eligible for
Medicaid, receive prescriptions in a timely manner;
• restrict a health plan’s ability to limit coverage to medically necessary care;
• restrict or eliminate health insurers and health plans in the marketplace;
• allow association health plans to create insurance-like products that compete unfairly with health plans;
• require third party review of certain care decisions;
• require health plans to pay significantly higher taxes;
• increase minimum capital or risk based capital requirements;
• expedite or modify grievance and appeals procedures;
• restrict the ability of health plans to share or shift the cost of health care services to providers or
members;
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