Cigna 2012 Annual Report Download - page 42

PART I
ITEM 1A Risk Factors
Court decisions and legislative activity may increase Cigna’s exposure
Cigna’s business is subject to substantial government
for any of these types of claims. In some cases, substantial
regulation that, along with new regulation, could
non-economic or punitive damages may be sought. Cigna currently
increase its costs of doing business and have a
has insurance coverage for some of these potential liabilities. Other
material adverse effect on its profitability.
potential liabilities may not be covered by insurance, insurers may
dispute coverage or the amount of insurance may not be sufficient to
Cigna’s business is regulated at the international, federal, state and
cover the entire damages awarded. In addition, certain types of
local levels. The laws and rules governing Cigna’s business and related
damages, such as punitive damages, may not be covered by insurance,
interpretations are increasing in number and complexity, are subject
and insurance coverage for all or certain forms of liability may become
to frequent change and can be inconsistent or even conflict with each
unavailable or prohibitively expensive in the future. It is possible that
other. As a public company with global operations, Cigna is subject to
the resolution of one or more of the legal matters and claims described
the laws of multiple jurisdictions and the rules and regulations of
could result in losses material to Cigna’s results of operations, financial
various governing bodies, including those related to financial and
condition and liquidity.
other disclosures, corporate governance, privacy, data protection,
labor and employment, consumer protection, tax and A description of material pending legal actions and other legal matters
anti-corruption. Cigna must identify, assess and respond to new in which Cigna is currently involved is included in Note 24 to Cigna’s
trends in the legislative and regulatory environments as well as Consolidated Financial Statements included in this Form 10-K. The
effectively comply with the various existing regulations applicable to outcome of litigation and other legal matters is always uncertain, and
its business. Existing or future laws, rules, regulatory interpretations outcomes that are not justified by the evidence or existing law can
or judgments could force Cigna to change how it does business, occur. Cigna believes that it has valid defenses to the legal matters
restrict revenue and enrollment growth, increase health care, pending against it and is defending itself vigorously.
technology and administrative costs, including pension costs and
In addition, there is heightened review by federal and state regulators
capital requirements, require enhancements to the Company’s
of health care and group disability insurance industry business and
compliance infrastructure and internal controls environment. Existing
reporting practices. Cigna is frequently the subject of regulatory
or future laws and rules could also require Cigna to take other actions
market conduct and other reviews, audits and investigations by state
such as changing its business practices for disability payments thereby
insurance and health and welfare departments, attorneys general, the
increasing Cigna’s liability in federal and state courts for coverage
Centers for Medicare and Medicaid Services (CMS) and, the Office of
determinations, contract interpretation and other actions.
Inspector General (OIG). With respect to Cigna’s Medicare
In addition, Cigna must obtain and maintain regulatory approvals to Advantage business, CMS and OIG perform audits to determine a
market many of its products, to increase prices for certain regulated health plan’s compliance with federal regulations and contractual
products and to consummate some of its acquisitions and divestitures. obligations, including compliance with proper coding practices
Delays in obtaining or failure to obtain or maintain these approvals (sometimes referred to as Risk Adjustment Data Validation Audits or
could reduce the Company’s revenue or increase its costs. For further RADV audits) and compliance with fraud and abuse enforcement
information on regulatory matters relating to Cigna, see ‘‘Business – practices through Recovery Audit Contractor (RAC) audits in which
Regulation’’ in Section H of this Form 10-K. third-party contractors conduct post-payment reviews on a
contingency fee basis to detect and correct improper payments. In
2012, Cigna significantly expanded its Medicare business with its
Cigna faces risks related to litigation, regulatory
acquisition of HealthSpring. This expansion of its Medicare business
audits and investigations.
may increase the risks the Company faces from lawsuits, regulatory
Cigna is routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other regulatory matters. These regulatory
audits, investigations and other legal matters arising in the ordinary reviews could result in changes to or clarifications of Cigna’s business
course of business, including that of administering and insuring practices or retroactive adjustments to certain premiums, and also
employee benefit programs. These could include benefit claims, could result in significant fines, penalties, civil liabilities, criminal
breach of contract actions, tort claims, disputes regarding reinsurance liabilities or other sanctions, that could have a material adverse effect
arrangements, employment and employment discrimination-related on the Company’s business, results of operation, financial condition
suits, employee benefit claims, wage and hour claims, tax, privacy, and liquidity. Additionally, the employee benefits industry remains
intellectual property and real estate related disputes. In addition, under scrutiny by various state and federal government agencies and
Cigna incurs and likely will continue to incur liability for claims could be subject to governmental efforts to bring criminal actions in
related to its health care business, such as failure to pay for or provide circumstances that could previously have given rise only to civil or
health care, poor outcomes for care delivered or arranged, provider administrative proceedings.
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.
20 CIGNA CORPORATION - 2012 Form 10-K