Health Net 2010 Annual Report Download - page 54

adversely affected by an ultimate unfavorable resolution of, or development in, any or all of these proceedings
depending, in part, upon our financial condition, results of operations, cash flow or liquidity in 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, results of operations, cash flow and liquidity.
Miscellaneous Proceedings
In the ordinary course of our business operations, we are also subject to periodic reviews and audits by
various regulatory agencies with respect to our compliance with a wide variety of rules and regulations
applicable to our business, including, without limitation, the Health Insurance Portability and Accountability Act
of 1996, or HIPAA, rules relating to pre-authorization penalties, payment of out-of-network claims, timely
review of grievances and appeals, and timely and accurate payment of claims, any one of which may result in
remediation of certain claims and the assessment of regulatory fines or penalties. From time to time, we receive
subpoenas and other requests for information from such regulatory agencies, as well as from state attorneys
general. There also continues to be heightened review by regulatory authorities of, and increased litigation
regarding, the health care industry’s business practices, including, without limitation, premium rate increases,
utilization management, appeal and grievance processing, information privacy, rescission of insurance coverage
and claims payment practices.
In addition, in the ordinary course of our business operations, we are party to various other legal
proceedings, including, without limitation, litigation arising out of our general business activities, such as
contract disputes, employment litigation, wage and hour claims, real estate and intellectual property claims,
claims brought by members seeking coverage or additional reimbursement for services allegedly rendered to our
members, but which allegedly were denied, underpaid, not timely paid or not paid, and claims arising out of the
acquisition or divestiture of various business units or other assets. We are also subject to claims relating to the
performance of contractual obligations to providers, members, employer groups and others, including the alleged
failure to properly pay claims and challenges to the manner in which we process claims, and claims alleging that
we have engaged in unfair business practices. In addition, we are subject to claims relating to the insurance
industry in general, such as claims relating to reinsurance agreements, information security breaches, rescission
of coverage and other types of insurance coverage obligations.
We intend to vigorously defend ourselves against the miscellaneous legal and regulatory proceedings to
which we are currently a party; however, these proceedings are subject to many uncertainties. It is possible that
in a particular quarter or annual period our financial condition, results of operations, cash flow and/or liquidity
could be materially adversely affected by an ultimate unfavorable resolution of or development in these or any
other legal and/or regulatory proceedings depending, in part, upon our financial condition, results of operations,
cash flow or liquidity in such period. However, management believes that the ultimate outcome of any of the
regulatory and legal proceedings which are currently pending against us should not have a material adverse effect
on our financial condition, results of operations, cash flow and liquidity.
Potential Settlements
We regularly evaluate legal proceedings and regulatory matters pending against us, including those
described above in this Item 3, to determine if settlement of such matters would be in the best interests of the
Company and its stockholders. We record reserves and accrue costs for certain significant legal proceedings and
regulatory matters which represent our best estimate of the probable loss, including related future legal costs, for
such matters. However, our recorded amounts might differ materially from the ultimate amount of any such
costs. The costs associated with any settlement of the various legal proceedings and regulatory matters to which
we are or may be subject from time to time, including those described above in this Item 3, could be substantial
and, in certain cases, could result in a significant earnings charge in any particular quarter in which we enter into
a settlement agreement and could have a material adverse effect on our financial condition, results of operations,
cash flow and/or liquidity.
Item 4. [Removed and Reserved.]
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