Health Net 2011 Annual Report Download - page 18

announced that it will not enforce compliance with these standards until March 31, 2012. We have implemented
the HIPAA 5010 requirements to be able to exchange 5010 formats with our trading partners. Furthermore, CMS
has adopted a new coding set for diagnoses, commonly referred to as ICD-10, which significantly expands the
number of codes utilized in claims processing. The new ICD-10 coding set is currently required to be
implemented by October, 2013. We will be required to incur significant additional expenses to implement and
support the new ICD-10 coding set. In addition, our implementation and support of the requirements of the ACA
could require the expenditure of significant resources.
In 2012, we expect to further modernize legacy health plan systems, provide technology renewal for our
desktops, networks and servers, and improve our customer service capabilities and contact center voice and
desktop agent infrastructure, among other information technology-related initiatives.
For additional information on our information technology and associated risks, 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 the privacy and security of such information, 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 health care organizations. HMOs
that apply for accreditation of particular product lines receive accreditation if they comply with review
requirements and quality standards. The commercial line of business of our Arizona HMO and California
Medicare subsidiaries have both received NCQA accreditation with a score of “excellent,” which is the highest
score NCQA awards. HN California’s commercial HMO/POS, 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
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