Health Net 2011 Annual Report Download - page 33

policies, claims payment practices and a wide variety of other regulations relating to the development and
operation of health plans. These laws, rules, and regulations are generally intended to benefit and protect
providers and health plan members rather than stockholders of managed health care companies such as Health
Net. There can be no assurance that we will be able to continue to obtain or maintain required governmental
approvals or licenses. The laws, rules, and regulations governing our business and interpretations of those laws,
rules, and regulations are subject to frequent change, and there is no guarantee that legislative or regulatory
changes will not have a material adverse effect on us. Broad latitude is given to the agencies administering these
laws, rules, and regulations to interpret them and to impose substantial fines or restrict our ability to do business
when they believe violations or failures to meet standards or requirements have occurred. Regulatory agencies,
such as the California Department of Managed Health Care, the California Department of Health Care Services,
CMS, the U.S. Department of Health & Human Services’ Office of Civil Rights and state departments of
insurance, have the authority to impose substantial fines and/or penalties against us and restrict our business
activities. Certain of these agencies have done so in the past, and may impose substantial fines and/or penalties
against us and restrict our business activities in the future if they determine that we have not complied with
applicable laws, rules, and regulations. Further, such fines, penalties and restrictions may be more severe in
circumstances in which regulatory agencies determine that we have repeatedly failed to comply with applicable
laws, rules or regulations. See “—Federal and state audits, reviews and investigations of us and our subsidiaries
could have a material adverse effect on our operations, financial condition and cash flows” for information
regarding sanctions imposed by CMS against us. As we have members in various states and are therefore subject
to the regulatory oversight of multiple jurisdictions, we have been in the past, and could be in the future, subject
to fines and/or penalties imposed by multiple regulatory agencies relating to the same incident. Existing or future
laws, rules, and regulations could, among other things, force us to change how we do business and may restrict
our revenue and/or enrollment growth, increase our health care and administrative costs, and/or increase our
exposure to liability with respect to members, providers or others. See “—Federal health care reform legislation
could have an adverse impact on our revenues and the costs of operating our business and could materially
adversely affect our business, cash flows, financial condition and results of operations,” “—Various health
insurance reform proposals are also emerging at the state level which could have an adverse impact on us” and
“—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.” Further, individual Health Net
associates may violate these laws, rules, and regulations, notwithstanding our internal policies and compliance
programs. For example, see “—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.”
As a federal and state government contractor, we are subject to U.S. and state government oversight. The
government may investigate our business practices and audit our compliance with applicable rules and regulations.
Depending on the results of those audits and investigations, the government could make claims against us. Under
government procurement regulations and practices, a negative determination resulting from such claims could result in
a contractor being fined, debarred and/or suspended from being able to bid on, or be awarded, new government
contracts for a period of time. In addition, we are subject to state and federal false claims laws that generally prohibit
the submission of false claims for reimbursement or payment to government agencies. We are also subject to the
Foreign Corrupt Practices Act and similar worldwide anti-corruption laws, including the U.K. Bribery Act of 2010,
which generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for
the purpose of obtaining or retaining business. Courts have imposed substantial fines and penalties against companies
found to have violated these laws. We are also exposed to other risks associated with U.S. and state government
contracting, including but not limited to dependence upon Congressional or legislative appropriation and allotment of
funds, the impact that delays in government payments could impact our operating cash flow, and the general ability of
the U.S. government to terminate contracts with it, in whole or in part, without prior notice, for convenience or for
default based on performance. In addition, delays in obtaining, or failure to obtain or maintain, governmental
approvals, or moratoria imposed by regulatory authorities, could adversely affect our revenue or membership, increase
costs or adversely affect our ability to bring new products to market as forecasted.
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