Humana 2015 Annual Report Download - page 134

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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state court), Litwin v. Broussard et al., Civ. Act. No. 15CI04054 (Kentucky state court) and Scott v. Humana Inc. et al.,
C.A. No. 11323-VCL (Delaware state court). The complaints name as defendants each member of Humana’s board of
directors, Aetna, and, in the case of the Delaware complaint, Humana. The complaints generally allege, among other
things, that the individual members of our board of directors breached their fiduciary duties owed to our stockholders
by entering into the Merger Agreement, approving the mergers as contemplated by the Merger Agreement, and failing
to take steps to maximize the value of Humana to our stockholders, and that Aetna, and, in the case of the Delaware
complaint, Humana aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the
merger undervalues Humana, that the process leading up to the execution of the Merger Agreement was flawed, that
the members of our board of directors improperly placed their own financial interests ahead of those of our stockholders,
and that certain provisions of the Merger Agreement improperly favor Aetna and impede a potential alternative
transaction. Among other remedies, the complaints seek equitable relief rescinding the Merger Agreement and enjoining
the defendants from completing the mergers as well as costs and attorneys’ fees. We refer to all these cases collectively
in this report as the Merger Litigation. On August 20, 2015, the parties in the Kentucky state cases filed a stipulation
and proposed order with the court to consolidate these cases into a single action captioned In re Humana Inc. Shareholder
Litigation, Civ. Act. No. 15CI03374.
On October 9, 2015, solely to avoid the costs, risks, and uncertainties inherent in litigation, and without admitting
any liability or wrongdoing, we and the other named defendants in the Merger Litigation signed a memorandum of
understanding, which we refer to as the MOU, to settle the Merger Litigation. Subject to court approval and further
definitive documentation in a stipulation of settlement that will be subject to customary conditions, the MOU resolved
the claims brought in the Merger Litigation and provided that we would make certain additional disclosures related to
the proposed mergers. The MOU further provided for, among other things, dismissal of the Merger Litigation with
prejudice and a release and settlement by the purported class of our stockholders of all claims against the defendants
and their affiliates and agents in connection with the Merger Agreement and transactions and disclosures related to the
Merger Agreement. The asserted claims will not be released until such stipulation of settlement receives court approval.
The foregoing terms and conditions will be defined by the stipulation of settlement, and class members will receive a
separate notice describing the settlement terms and their rights in connection with the approval of the settlement. In
connection with the settlement, the parties contemplate that plaintiffs’ counsel will file a petition for an award of
attorneys’ fees and expenses. We will pay or cause to be paid any court awarded attorneys’ fees and expenses. There
can be no assurance that the parties will ultimately enter into a stipulation of settlement or that a court will approve
such settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as
contemplated by the MOU may be terminated. Because the MOU contemplates that the Kentucky court will be asked
to approve the settlement, the plaintiffs have already withdrawn the Delaware case.
Other Lawsuits and Regulatory Matters
Our current and past business practices are subject to review or other investigations by various state insurance and
health care regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize
the business practices of health insurance, health care delivery and benefits companies. These reviews focus on numerous
facets of our business, including claims payment practices, statutory capital requirements, provider contracting, risk
adjustment, competitive practices, commission payments, privacy issues, utilization management practices, pharmacy
benefits, access to care, and sales practices, among others. Some of these reviews have historically resulted in fines
imposed on us and some have required changes to some of our practices. We continue to be subject to these reviews,
which could result in additional fines or other sanctions being imposed on us or additional changes in some of our
practices.
We also are involved in various other lawsuits that arise, for the most part, in the ordinary course of our business
operations, certain of which may be styled as class-action lawsuits. Among other matters, this litigation may include
employment matters, claims of medical malpractice, bad faith, nonacceptance or termination of providers,
anticompetitive practices, improper rate setting, provider contract rate disputes, failure to disclose network discounts
and various other provider arrangements, general contractual matters, intellectual property matters, and challenges to
subrogation practices. For example, a number of hospitals and other providers have asserted that, under their network
provider contracts, we are not entitled to reduce Medicare Advantage payments to these providers in connection with
changes in Medicare payment systems and in accordance with the Balanced Budget and Emergency Deficit Control