Humana 2015 Annual Report Download - page 39

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State Regulation of Insurance-Related Products
Laws in each of the states (and Puerto Rico) in which we operate our HMOs, PPOs and other health insurance-
related services regulate our operations including: capital adequacy and other licensing requirements, policy language
describing benefits, mandated benefits and processes, entry, withdrawal or re-entry into a state or market, rate increases,
delivery systems, utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim
payments, marketing, and advertising. The HMO, PPO, and other health insurance-related products we offer are sold
under licenses issued by the applicable insurance regulators.
Our licensed insurance subsidiaries are also subject to regulation under state insurance holding company and Puerto
Rico regulations. These regulations generally require, among other things, prior approval and/or notice of new products,
rates, benefit changes, and certain material transactions, including dividend payments, purchases or sales of assets,
intercompany agreements, and the filing of various financial and operational reports.
Any failure by us to manage acquisitions, divestitures and other significant transactions successfully may have
a material adverse effect on our results of operations, financial position, and cash flows.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible
investments, acquisitions, divestitures, strategic alliances, joint ventures, and outsourcing transactions and often enter
into agreements relating to such transactions in order to further our business objectives. In order to pursue our acquisition
strategy successfully, we must identify suitable candidates for and successfully complete transactions, some of which
may be large and complex, and manage post-closing issues such as the integration of acquired companies or employees.
Integration and other risks can be more pronounced for larger and more complicated transactions, transactions outside
of our core business space, or if multiple transactions are pursued simultaneously. The failure to successfully integrate
acquired entities and businesses or failure to produce results consistent with the financial model used in the analysis
of our acquisitions may have a material adverse effect on our results of operations, financial position, and cash flows.
If we fail to identify and complete successfully transactions that further our strategic objectives, we may be required
to expend resources to develop products and technology internally. In addition, from time to time, we evaluate
alternatives for our businesses that do not meet our strategic, growth or profitability objectives. The divestiture of certain
businesses could result, individually or in the aggregate, in the recognition of material losses and a material adverse
effect on our results of operations. There can be no assurance that we will be able to complete any such divestitures on
terms favorable to us.
If we fail to develop and maintain satisfactory relationships with the providers of care to our members, our
business may be adversely affected.
We employ or contract with physicians, hospitals and other providers to deliver health care to our members. Our
products encourage or require our customers to use these contracted providers. A key component of our integrated care
delivery strategy is to increase the number of providers who share medical cost risk with us or have financial incentives
to deliver quality medical services in a cost-effective manner.
In any particular market, providers could refuse to contract with us, demand higher payments, or take other actions
that could result in higher health care costs for us, less desirable products for customers and members or difficulty
meeting regulatory or accreditation requirements. In some markets, some providers, particularly hospitals, physician
specialty groups, physician/hospital organizations, or multi-specialty physician groups, may have significant market
positions and negotiating power. In addition, physician or practice management companies, which aggregate physician
practices for administrative efficiency and marketing leverage, may compete directly with us. If these providers refuse
to contract with us, use their market position to negotiate unfavorable contracts with us or place us at a competitive
disadvantage, or do not enter into contracts with us that encourage the delivery of quality medical services in a cost-
effective manner, our ability to market products or to be profitable in those areas may be adversely affected.
In some situations, we have contracts with individual or groups of primary care providers for an actuarially
determined, fixed fee per month to provide a basket of required medical services to our members. This type of contract