Health Net 2014 Annual Report Download - page 15

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Hospital Relationships
Our health plan subsidiaries arrange for hospital care primarily through contracts with selected hospitals in their
service areas. These hospital contracts generally have multi-year terms or annual terms with automatic renewals and
provide for payments on a variety of bases, including capitation, per diem rates, case rates and discounted fee-for-
service schedules.
Covered hospital-based care for our members is comprehensive. It includes the services of hospital-based
physicians, nurses and other hospital personnel, room and board, intensive care, laboratory and x-ray services,
diagnostic imaging and generally all other services normally provided by acute-care hospitals. Our nurses and medical
directors are involved in a wide variety of medical management activities on behalf of our HMO and, to a somewhat
lesser extent, PPO members. These activities can include discharge planning and case management, which often
involves the coordination of community support services, including visiting nurses, physical therapy, durable medical
equipment and home intravenous therapy.
Ancillary and Other Provider Relationships
Our health plan subsidiaries arrange for ancillary and other provider services, such as ambulance, laboratory,
radiology, home health, chiropractic, acupuncture and other various therapy providers primarily through contracts with
selected providers in their service areas. These contracts generally have multi-year terms or annual terms with
automatic renewals and provide for payments on a variety of bases, including capitation, per diem rates, case rates and
discounted fee-for-service schedules. In certain cases, these provider services are included in contracts our health plan
subsidiaries have with PPGs and hospitals.
See “Item 1A. Risk Factors—If we fail to develop and maintain satisfactory relationships on competitive terms
with the hospitals, provider groups and other providers that provide services to our members, our profitability could be
adversely affected” for additional information on the risks associated with our provider relationships.
Additional Information Concerning Our Business
Competition
We operate in a highly competitive environment in an industry currently subject to ongoing significant changes
resulting from the ACA, business consolidations, new strategic alliances, market pressures, and regulatory and
legislative reform including but not limited to the federal health care reform legislation described below in “—
Government Regulation”. Our primary competitors include managed health care companies, insurance companies,
HMOs, third party administrators, self-funded groups and provider owned plans. Our health plans face substantial
competition from both for-profit and nonprofit health plans that offer HMO, PPO, self-funded and traditional indemnity
insurance products (including self-insured employers and union trust funds). We also face substantial competition from
both for-profit and nonprofit health plans, as well as other non-health plan companies with respect to our contracts with
state and federal government agencies, including our T-3, MFLC and PC3 contracts with the federal government, as
well as our Medicaid and dual eligibles contracts, each of which may be subject to periodic re-competition. Some of our
competitors have substantially larger enrollment and greater financial resources than we do. We believe that the
principal competitive features affecting our ability to retain and increase membership include the range and prices of
benefit plans offered, size and quality of provider network, quality of service, responsiveness to customer demands,
financial stability, comprehensiveness of coverage, diversity of product offerings, market presence and reputation. The
relative importance of each of these factors and the identity of our key competitors varies by market and product. We
believe that we compete effectively against other health care industry participants.
Our primary commercial and Medicare competitors in California are Kaiser Permanente, Anthem Blue Cross of
California, Blue Shield of California, and United/PacifiCare. Together, these four plans and Health Net account for
approximately 82% of the insured commercial and Medicare market in California. Based on the number of 2014
enrollees, Kaiser is the largest managed health care company in California and Anthem Blue Cross of California is the
largest PPO provider in California. In addition, two of the major national managed care companies, Aetna, Inc. and
CIGNA Corp., are active in California, with a significant share of the self-insured market.
In Arizona, our primary commercial and Medicare competitors are BlueCross BlueShield of Arizona, Aetna, Inc.,
Cigna Corp., UnitedHealth Group, Inc., Anthem, Inc. and Humana, Inc.
In the California and Arizona Medicaid markets, we compete for members with other entities that have been
awarded Medicaid contracts in the same counties, and if an applicable Medicaid county or region is put up for bid, we