Health Net 2010 Annual Report Download - page 17

process management solutions. We believe these initiatives will improve our overall ability to respond to changes
in the marketplace and make it easier to do business with us, while at the same time allowing us to maintain a
competitive cost structure.
See “Item 1A. Risk Factors—If we fail to effectively maintain our information management systems, it could
adversely affect our business”, “Item 1A. Risk Factors—We are subject to risks associated with outsourcing
services and functions to third parties” and “Item 1A. Risk Factors—If we fail to comply with requirements
relating to patient privacy and information security, including taking steps to ensure that our business associates
who obtain access to sensitive patient information maintain its confidentiality, our reputation and business
operations could be materially adversely affected.”
Medical Management
We believe that managing health care costs is an essential function for a managed care company. Among the
medical management techniques we utilize to contain the growth of health care costs are pre-authorization or
certification for outpatient and inpatient hospitalizations and a concurrent review of active inpatient hospital stays
and discharge planning. We believe that this authorization process reduces inappropriate use of medical
resources and achieves efficiencies in referring cases to the most appropriate providers. We also contract with
third parties to manage certain conditions such as neonatal intensive care unit admissions and stays, as well as
chronic conditions such as asthma, diabetes and congestive heart failure. These techniques are widely used in the
managed care industry and are accepted practices in the medical profession.
Accreditation
We pursue accreditation for certain of our health plans from the National Committee for Quality Assurance
(“NCQA”) and the Utilization Review Accreditation Commission (“URAC”). NCQA and URAC are
independent, non-profit organizations that review and accredit HMOs and other healthcare organizations. HMOs
that apply for accreditation of particular product lines receive accreditation if they comply with review
requirements and quality standards. The commercial lines of business of our Arizona HMO and California HMO/
POS subsidiaries have both received NCQA accreditation with a score of “excellent,” which is the highest score
NCQA awards. HN California’s Medicare and Medicaid, and HNL’s PPO, lines of business received NCQA
accreditation with a score of “commendable” Our MHN subsidiary has received URAC accreditation.
Government Regulation
Our business is subject to comprehensive federal regulation and state regulation in the jurisdictions in which
we do business. These laws and regulations govern how we conduct our businesses and result in additional
requirements, restrictions and costs to us. Certain of these laws and regulations are discussed below.
Federal Legislation and Regulation
Health Care Reform Legislation. During the first quarter of 2010, the President signed into law both the
Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010
(collectively, “ACA”), which will result in significant changes to the U.S. health care system and alter the
dynamics of the health care insurance industry. The provisions of the new legislation include, among others,
imposing significant new taxes and fees on health insurers, including an excise tax on high premium insurance
policies, stipulating a minimum medical loss ratio (as defined by the National Association of Insurance
Commissioners (“NAIC”)), new annual fees on companies in our industry which may not be deductible for
income tax purposes, limiting Medicare Advantage payment rates, mandated additional benefits, elimination of
medical underwriting for medical insurance coverage decisions, or “guaranteed issue,” increased restrictions on
rescinding coverage, prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our
members, requirements that limit the ability of health plans to vary premiums based on assessments of
underlying risk, limitations on the amount of compensation paid to health insurance executives that is tax
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