Health Net 2011 Annual Report Download - page 72

loss on sale of our Northeast health plan subsidiaries, $174.9 million of asset impairment on Northeast
Operations and $123.6 million in charges related to our operations strategy, reductions for a litigation reserve
true-up and Northeast Sale related expenses.
Days Claims Payable
Days claims payable (“DCP”) for the year ended December 31, 2011 was 37.2 days compared with 39.9
days for the year ended December 31, 2010. On an adjusted basis (adjusting to exclude capitation, provider and
other claim settlements and Medicare Advantage-Prescription Drug (“MAPD”) and stand-alone PDP payables/
costs), DCP in the year ended December 31, 2011 was 54.5 days compared with 57.2 days in the year ended
December 31, 2010. Set forth below is a reconciliation of adjusted DCP, a non-GAAP financial measure, to the
comparable GAAP financial measure, DCP.
DCP is calculated by dividing the amount of reserve for claims and other settlements (“Claims Reserve”) by
health plan services cost (“Health Plan Costs”) during the year and multiplying that amount by the number of
days in the year. The following table presents an adjusted DCP metric which subtracts capitation, provider and
other claim settlements and MAPD and stand-alone PDP payables/costs from the Claims Reserve and Health
Plan Costs. Management believes that adjusted DCP provides useful information to investors because the
adjusted DCP calculation excludes from both Claims Reserve and Health Plan Costs amounts related to health
care costs for which no or minimal reserves are maintained. Therefore, management believes that adjusted DCP
may present a more accurate reflection of DCP calculated from claims-based reserves than does GAAP DCP,
which includes such costs. This non-GAAP financial information should be considered in addition to, not as a
substitute for, financial information prepared in accordance with GAAP. You are encouraged to evaluate these
adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating the adjusted
amounts, you should be aware that we have incurred expenses that are the same as or similar to some of the
adjustments in the current presentation and we may incur them again in the future. Our presentation of the
adjusted amounts should not be construed as an inference that our future results will be unaffected by unusual or
nonrecurring items.
Reconciliation of Adjusted Days Claims Payable:
Year Ended
December 31,
2011 2010
(Dollars in millions)
Reconciliation of Adjusted Days Claims Payable:
(1) Reserve for Claims and Other Settlements ................................... $ 912.1 $ 942.0
Less: Capitation, Provider and Other Claim Settlements and MAPD and stand-alone
PDP Payables ...................................................... (90.7) (108.7)
(2) Reserve for Claims and Other Settlements—Adjusted .......................... $ 821.4 $ 833.3
(3) Health Plan Services Cost ................................................ $8,948.3 $ 8,609.1
Less: Capitation, Provider and Other Claim Settlements and MAPD and stand-alone
PDP Costs ......................................................... (3,450.2) (3,291.1)
(4) Health Plan Services Cost—Adjusted ...................................... $5,498.1 $ 5,318.0
(5) Number of Days in Period ............................................... 365 365
(1) / (3) * (5) Days Claims Payable—(using end of period reserve amount) ........... 37.2 39.9
(2) / (4) * (5) Days Claims payable—Adjusted (using end of period reserve amount) .... 54.5 57.2
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