Health Net 2011 Annual Report Download - page 151

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, contract termination, the loss of licensure or the right to participate in
certain programs, and the assessment of regulatory fines or penalties, which could be substantial. From time to
time, we receive subpoenas and other requests for information from, and are subject to investigations by, 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, information privacy, premium rate increases, utilization management, appeal and
grievance processing, 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 or providers 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 information security incidents and breaches, reinsurance agreements, rescission of coverage and other
types of insurance coverage obligations and claims relating to the insurance industry in general. We are, and may
be in the future, subject to class action lawsuits brought against various managed care organizations and other
class action lawsuits.
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. In some of the
cases pending against us, substantial non-economic or punitive damages are being sought.
We record reserves and accrue costs for certain legal proceedings and regulatory matters to the extent that we
determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such
reserves and accrued costs reflect our best estimate of the probable loss for such matters, our recorded amounts may
differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range
of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and
regulatory proceedings, which may be exacerbated by various factors, including but not limited to that they may
involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages, present
novel legal theories, involve disputed facts, represent a shift in regulatory policy, involve a large number of parties,
claimants or regulatory bodies, are in the early stages of the proceedings, or could result in a change of business
practices. Further, there may be various levels of judicial review available to the Company in connection with any
such proceeding in the event damages are awarded or a fine or penalty is assessed. 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 legal and/or regulatory proceedings,
including those described above in this Note 13 under the heading “Litigation and Investigations Related to
Unaccounted-for Server Drives,” depending, in part, upon our financial condition, results of operations, cash flow or
liquidity in such period, and our reputation may be adversely affected. Except for the regulatory and legal
proceedings discussed in this Note 13 under the heading “Litigation and Investigations Related to Unaccounted-for
Server Drives,” 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.
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