Health Net 2011 Annual Report Download - page 41

themselves functions or services currently provided by us, which could result in a decrease in our revenues. In
addition, our providers and suppliers may decide to market products and services to our customers in competition
with us.
In addition, the response of our competitors to the ACA and related adjustments to their offerings, if any,
could cause meaningful disruption in local health care markets in which we operate. Competitors could modify
their product features or benefits, change their pricing relative to others in the market, adjust their mix of
business or even exit segments of the market. We may not be able to match our competitors’ ability to support
reduced premiums by making changes to their distribution arrangements, decreasing spending on non-medical
product features and services, or otherwise adjusting their operating costs and reducing general and
administrative expenses.
In recent years, there has been significant merger and acquisition activity in our industry and in industries
that act as our suppliers, such as the hospital, medical group, pharmaceutical and medical device industries. This
activity may create stronger competitors and/or result in higher health care costs. Furthermore, the adoption of
the ACA could further increase the likelihood of provider consolidation, which in turn could make it more
difficult for us to negotiate competitive rates. In addition, our contracts with government agencies, such as our T-
3 North Region and MFLC contracts, are from time to time up for re-bid and the loss of any significant
government contract to a competitor, such as the T-3 North Region and MFLC contracts, could have an adverse
effect on our financial condition and results of operations. See “—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” for more information regarding our T-3 North Region and MFLC contracts. In addition,
see “Item 1—Segment Information—Western Region Operations Segment—Medicaid and Related Products” for
more information regarding certain opportunities to expand our business with government customers that are
subject to highly competitive processes. To the extent that there is strong competition or that competition
intensifies in any market, our ability to retain or increase customers, our revenue growth, our pricing flexibility,
our control over medical cost trends and our marketing expenses may all be adversely affected.
The continued membership growth in our tailored network products and the continued development of
innovative provider relationships are an important part of our business strategy. However, there can be no
assurance that we will be able to successfully implement these strategic initiatives that are intended to position us
for health care reform and future profitable growth, that the products we design in collaboration with certain
providers will be successful or developed within the time periods expected, or that the products that we offer will
be preferable to similar products of our competitors.
If we do not compete effectively in our markets, if we do not design and price our products appropriately
and competitively, if we are unable to innovate and deliver products and services that demonstrate value to our
customers, if we set rates too high or too low in highly competitive markets, if we lose accounts with more
profitable products while retaining or increasing membership in accounts with less profitable products, if we do
not provide satisfactory service levels, if membership or demand for other services does not increase as we
expect or if membership or demand for other services declines, it could have a material adverse effect on our
business, financial condition and results of operations.
We face a wide range of risks, and our success depends on our ability to identify, prioritize and appropriately
manage our enterprise risk exposures.
As a large company operating in a complex and highly-regulated industry, we encounter a variety of risks.
The risks we face include, among others, the range of regulatory, competitive, financial, operational,
reputational, external and industry risks identified in this Risk Factors discussion. The third party vendors and
service providers to which we outsource key functions are also required to achieve and maintain compliance with
applicable federal and state laws and regulations. Any violations of, or noncompliance with, laws and/or
regulations governing our business, or the terms of our contracts, by third party vendors or service providers
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