Health Net 2005 Annual Report Download - page 25

• reduce the reimbursement or payment levels for services provided under government programs such as
Medicare and Medicaid;
• enhance providers’ payment rights and access to appeal processes;
• segment existing markets (which could create an unsuitable regulatory environment for us);
• mandate certain benefits and services, including mental health parity, that could increase our costs;
• add further restrictions and administrative and disclosure requirements related to compensatory
arrangements pertaining to agents and brokers in connection with the sale of products;
• restrict a health plan’s ability to select and/or terminate providers;
• restrict a health plan’s ability to establish formulary terms and conditions for covered pharmaceuticals;
• regulate health care premiums; and
• require participation in a dispute resolution process to determine what providers should be paid.
We cannot predict the outcome of any such legislative or regulatory proposals, nor the extent to which we
may be affected by the enactment of any such legislation or regulations. Such legislation or regulation, including
measures that would cause us to change our current manner of operation or increase our exposure to liability,
could have a material adverse effect on our results of operations, financial condition and ability to compete in our
industry.
A significant reduction in revenues from the government programs in which we participate could have an
adverse effect on our business, financial condition or results of operations.
Approximately 42% of our revenues relate to federal, state and local government health care coverage
programs, such as Medicare, Medicaid and TRICARE. Under government-funded health programs, the
government payor typically determines premium and reimbursement levels. If the government payor reduces
premium or reimbursement levels or increases them by less than our costs increase, and we are unable to make
offsetting adjustments through supplemental premiums and changes in benefit plans, we could be adversely
affected. Contracts under these programs are generally subject to frequent change, including changes which may
reduce the number of persons enrolled or eligible, reduce the revenue received by us or increase our
administrative or health care costs under such programs. Changes of this nature could have a material adverse
effect on our business, financial condition or results of operations. Changes to government health care coverage
programs in the future may also affect our willingness to participate in these programs.
The amount of government receivables set forth in our consolidated financial statements represents our best
estimate of the government’s liability to us under TRICARE and other federal government contracts. In general,
government receivables are estimates and subject to government audit and negotiation. In addition, inherent in
government contracts are an uncertainty of and vulnerability to disagreements with the government. Final
amounts we ultimately receive under government contracts may be significantly greater or less than the amounts
we initially recognize on our financial statements.
States periodically consider reducing or reallocating the amount of money they spend for Medicaid.
Currently, many states are experiencing budget deficits, and some states, including California, have reduced or
have begun to reduce, or have proposed reductions in, payments to Medicaid managed care providers. Any
significant reduction in payments received in connection with Medicaid could adversely affect our business,
financial condition or results of operations.
If we are unable to maintain good relations with the physicians, hospitals and other providers that we
contract with, our profitability could be adversely affected.
We contract with physicians, hospitals and other providers as a means to assure access to health care
services for our members, to manage health care costs and utilization and to better monitor the quality of care
being delivered. In any particular market, providers could refuse to contract with us, demand higher payments or
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