Health Net 2011 Annual Report Download - page 56

may be shared among the defendants), (iii) the proceedings are in their early stages and discovery is not
complete, (iv) there are significant facts in dispute, (v) the matters present legal uncertainties, (vi) there is a wide
range of potential outcomes in each dispute and (vii) there are various levels of judicial review available to us in
each matter in the event damages are awarded or fines or penalties are assessed. Nevertheless, an adverse
resolution of or development in the proceedings could have a material adverse affect on our financial condition,
results of operations, cash flow and liquidity and could affect our reputation.
Miscellaneous Proceedings
In the ordinary course of our business operations, we are subject to periodic reviews, investigations and
audits by various federal and state 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, 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
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