Aetna 2013 Annual Report Download - page 139

Annual Report- Page 133
records. CMS pays increased premiums to Medicare Advantage plans and PDPs for members who have certain
medical conditions identified with specific diagnosis codes. Federal regulators review and audit the providers’
medical records to determine whether those records support the related diagnosis codes that determine the
members’ health status and the resulting risk-adjusted premium payments to us. In that regard, CMS has instituted
risk adjustment data validation (“RADV”) audits of various Medicare Advantage plans, including certain of the
Company's plans. The Office of Inspector General (the “OIG”) also is auditing risk adjustment data of other
companies, and we expect CMS and the OIG to continue auditing risk adjustment data.
CMS is using a new audit methodology for RADV audits to determine refunds payable by Medicare Advantage
plans for contract year 2011 and forward. Under the new methodology, among other things, CMS will project the
error rate identified in the audit sample of approximately 200 members to all risk adjusted premium payments made
under the contract being audited. Historically, CMS did not project sample error rates to the entire contract. As a
result, the new methodology may increase our exposure to premium refunds to CMS based on incomplete medical
records maintained by providers. During 2013, CMS selected certain of our Medicare Advantage contracts for
contract year 2011 for audit. We are currently unable to predict which of our Medicare Advantage contracts will be
selected for future audit, the amounts of any retroactive refunds of, or prospective adjustments to, Medicare
Advantage premium payments made to us, the effect of any such refunds or adjustments on the actuarial soundness
of our Medicare Advantage bids, or whether any RADV audit findings would cause a change to our method of
estimating future premium revenue in future bid submissions to CMS or compromise premium assumptions made
in our bids for prior contract years or the current contract year. Any premium or fee refunds or adjustments
resulting from regulatory audits, whether as a result of RADV or other audits by CMS, the OIG or otherwise, could
be material and could adversely affect our operating results, financial position and cash flows.
Other Litigation and Regulatory Proceedings
We are involved in numerous other lawsuits arising, for the most part, in the ordinary course of our business
operations, including claims of or relating to bad faith, medical malpractice, non-compliance with state and federal
regulatory regimes, marketing misconduct, failure to timely or appropriately pay or administer claims and benefits
in our Health Care and Group Insurance businesses (including our post-payment audit and collection practices and
reductions in payments to providers due to sequestration), provider network structure (including the use of
performance-based networks and termination of provider contracts), rescission of insurance coverage, improper
disclosure of personal information, patent infringement and other intellectual property litigation, other legal
proceedings in our Health Care and Group Insurance businesses and employment litigation. Some of these other
lawsuits are or are purported to be class actions. We intend to vigorously defend ourselves against the claims
brought in these matters.
Awards to us and others of certain government contracts, particularly in our Medicaid business, are subject to
increasingly frequent protests by unsuccessful bidders. These protests may result in awards to us being reversed,
delayed or modified. The loss or delay in implementation of any government contract could adversely affect our
operating results. We will continue to defend vigorously contract awards we receive.
In addition, our operations, current and past business practices, current and past contracts, and accounts and other
books and records are subject to routine, regular and special investigations, audits, examinations and reviews by,
and from time to time we receive subpoenas and other requests for information from, CMS, the U.S. Department of
Health and Human Services, various state insurance and health care regulatory authorities, state attorneys general
and offices of inspector general, the Center for Consumer Information and Insurance Oversight, OIG, the Office of
Personnel Management, the U.S. Department of Labor, committees, subcommittees and members of the U.S.
Congress, the U.S. Department of Justice, the Federal Trade Commission, U.S. attorneys and other state, federal
and international governmental authorities. These government actions include inquiries by, and testimony before,
certain members, committees and subcommittees of the U.S. Congress regarding certain of our current and past
business practices, including our overall claims processing and payment practices, our business practices with
respect to our small group products, student health products or individual customers (such as market withdrawals,
rating information, premium increases and medical benefit ratios), executive compensation matters and travel and