Cigna 2011 Annual Report Download - page 45

23CIGNA CORPORATION2011 Form10K
PARTI
ITEM 1A Risk Factors
various governing bodies, including those related to nancial and
other disclosures, corporate governance, privacy, data protection, labor
and employment, consumer protection and anti-corruption. Cigna
must identify, assess and respond to new trends in the legislative and
regulatory environments as well as eectively comply with the various
existing regulations applicable to its business. Existing or future laws
and rules could force Cigna to change how it does business, restrict
revenue and enrollment growth, increase health care, technology and
administrative costs, including pension costs and capital requirements,
require enhancements to the Company’s compliance infrastructure and
internal controls environment, take other actions such as changing
its reserve levels with respect to certain reinsurance contracts, change
business practices in disability payments and increase Cigna’s liability
in federal and state courts for coverage determinations, contract
interpretation and other actions.
In addition, Cigna must obtain and maintain regulatory approvals to
market many of its products, to increase prices for certain regulated
products and to consummate some of its acquisitions and divestitures.
Delays in obtaining or failure to obtain or maintain these approvals
could reduce the Company’s revenue or increase its costs. For further
information on regulatory matters relating to Cigna, see “Regulation”
in SectionJ beginning on page17 and “Legal Proceedings” in Item3
beginning on page30 of this Form10-K.
Cigna faces risks related to litigation, regulatory audits
and investigations.
Cigna is routinely involved in numerous claims, lawsuits, regulatory
audits, investigations and other legal matters arising in the ordinary
course of business, including that of administering and insuring
employee benet programs. Legal matters include benet claims,
breach of contract actions, tort claims, disputes regarding reinsurance
arrangements, employment and employment discrimination-related
suits, employee benet claims, wage and hour claims, and intellectual
property and real estate related disputes. In addition, Cigna incurs and
likely will continue to incur liability for claims related to its health
care business, such as failure to pay for or provide health care, poor
outcomes for care delivered or arranged, provider disputes, including
disputes over compensation, and claims related to self-funded business.
Also, there are currently, and may be in the future, attempts to bring
class action lawsuits against the industry.
Court decisions and legislative activity may increase Cigna’s exposure for
any of these types of claims. In some cases, substantial non-economic or
punitive damages may be sought. Cigna currently has insurance coverage
for some of these potential liabilities. Other potential liabilities may not
be covered by insurance, insurers may dispute coverage or the amount
of insurance may not be sucient to cover the entire damages awarded.
In addition, certain types of damages, such as punitive damages, may
not be covered by insurance, and insurance coverage for all or certain
forms of liability may become unavailable or prohibitively expensive in
the future. It is possible that the resolution of one or more of the legal
matters and claims described could result in losses material to Cigna’s
results of operations, nancial condition and liquidity.
A description of material legal actions and other legal matters in which
Cigna is currently involved is included under “Legal Proceedings”
in Item3 beginning on page30, Note23 to Cigna’s Consolidated
Financial Statements beginning on page119 of this Form10-K and
“Regulation” in SectionJ beginning on page17. e outcome of
litigation and other legal matters is always uncertain, and outcomes
that are not justied by the evidence or existing law can occur. Cigna
believes that it has valid defenses to the legal matters pending against
it and is defending itself vigorously.
In addition, there is heightened review by federal and state regulators
of health care and group disability insurance industry business and
reporting practices. Cigna is frequently the subject of regulatory
market conduct and other reviews, audits and investigations by state
insurance and health and welfare departments, attorneys general, e
Centers for Medicare and Medicaid Services (CMS) and, the Oce of
Inspector General (OIG). With respect to Cigna’s Medicare Advantage
business, CMS and OIG perform audits to determine a health plan’s
compliance with federal regulations and contractual obligations,
including compliance with proper coding practices (sometimes referred
to as Risk Adjustment Data Validation Audits or RADV audits) and
compliance with fraud and abuse enforcement practices through
Recovery Audit Contractor (RAC) audits in which third-party contractors
conduct post-payment reviews on a contingency fee basis to detect and
correct improper payments. ese regulatory reviews could result in
changes to or clarications of Cigna’s business practices or retroactive
adjustments to certain premiums, and also could result in signicant
nes, penalties, civil liabilities, criminal liabilities or other sanctions,
which could have a material adverse eect on the Company’s business
or results of operation.
Business Risks
Future performance of Cigna’s business will depend
on the Company’s ability to execute on its strategic
and operational initiatives effectively.
e future performance of Cigna’s business will depend in large part
on Cigna’s ability to eectively implement and execute its strategic and
operational initiatives, which include: (1) repositioning the portfolio
for growth in targeted geographies, product lines, buying segments
and distribution channels; (2) improving its strategic and nancial
exibility; and (3) pursuing additional opportunities in high-growth
markets with particular focus on individuals.
Successful execution of these strategic and operational initiatives depends
on a number of factors including:
•
dierentiating Cigna’s products and services from those of its
competitors by leveraging its health advocacy capabilities and other
strengths in targeted markets, geographies and buyer segments;
•
developing and introducing new products or programs, particularly
in response to government regulation and the increased focus on
consumer directed products;
•
identifying and introducing the proper mix or integration of products
that will be accepted by the marketplace;
Contents
Q