Cigna 2014 Annual Report Download - page 53

PART I
ITEM 1A. Risk Factors
governments. Funding for these programs is dependent on many
If we fail to develop and maintain satisfactory
factors outside our control, including general economic conditions,
relationships with physicians, hospitals and other
continuing government efforts to contain health care costs and
health care providers, our business and results of
budgetary constraints at the federal or applicable state or local level
operations may be adversely affected.
and general political issues and priorities. These entities generally have
the right to not renew or cancel their contracts with us on short notice We contract with physicians, hospitals and other health care providers
without cause or if funds are not available. Unanticipated changes in for services rendered to our customers. Our results of operations are
funding, such as the application of sequestration by the federal or state substantially dependent on our ability to contract for these services at
governments, could substantially reduce our revenues and competitive prices. In any particular market, physicians, hospitals and
profitability. health care providers could refuse to contract, demand higher
payments or take other actions that could result in higher medical
The Medicare program has been the subject of recent regulatory costs or less desirable products for our customers. In some markets,
reform initiatives, including Health Care Reform. The premium rates certain providers, particularly hospitals, physician/hospital
paid to Medicare Advantage plans are established by contract, organizations and multi-specialty physician groups, may have
although the rates differ depending on a combination of factors, many significant or controlling market positions that could result in a
of which are outside our control. Effective in 2012, Health Care diminished bargaining position for us. If providers refuse to contract
Reform ties a portion of each Medicare Advantage plan’s with us, use their market position to negotiate favorable contracts or
reimbursement to the plan’s ‘‘star rating’’ by CMS, with those plans place us at a competitive disadvantage, our ability to market products
receiving a rating of three or more stars eligible for quality-based or to be profitable in those areas could be materially and adversely
bonus payments. The star rating system considers various measures affected.
adopted by CMS, including, among other things, quality of care,
preventative services, chronic illness management and customer Our ability to develop and maintain satisfactory relationships with
satisfaction. Beginning in 2015, plans must have a star rating of four health care providers also may be negatively impacted by other factors
or higher to qualify for bonus payments. Our Medicare Advantage not associated with us, such as changes in Medicare and/or Medicaid
plans’ operating results, premium revenue and benefit offerings are reimbursement levels, increasing revenue and other pressures on
likely to continue to be significantly determined by their star ratings. health care providers and consolidation activity among hospitals,
If we do not maintain or continue to improve our star ratings, our physician groups and health care providers. For example, ongoing
plans may not be eligible for full-level quality bonuses, which could reductions by CMS and state governments in amounts payable to
adversely affect the benefits that our plans can offer, reduce our providers, particularly hospitals, for services provided to Medicare and
customer base and/or reduce margins. Medicaid enrollees may pressure the financial condition of certain
providers and, in turn, adversely impact our ability to maintain or
Contracts with CMS and the various state governmental agencies develop new cost-effective health care provider contracts or result in a
contain certain provisions regarding data submission, provider loss of revenues or customers.
network maintenance, quality measures, claims payment, continuity
of care, call center performance and other requirements. If we fail to Recent and continuing consolidation among physicians, hospitals and
comply with these requirements, we may be subject to fines or other health care providers, development of accountable care
penalties that could impact our profitability. organizations and other changes in the organizational structures that
physicians, hospitals and health care providers choose may change the
In addition, any failure to comply with various state and federal health way these providers interact with us and may change the competitive
care laws and regulations, including those directed at preventing fraud landscape in which we operate. In some instances, these organizations
and abuse in government funded programs, could result in may compete directly with us, potentially affecting the way that we
investigations or litigation, such as actions under the federal False price our products or causing us to incur increased costs if we change
Claims Act and similar whistleblower statutes under state laws. This our operations to be more competitive. Our focus on developing
could subject us to fines, limits on expansion, restrictions or collaborative accountable care organizations and independent practice
exclusions from programs or other agreements with federal or state associations or similar business arrangements with physicians and
governmental agencies that could adversely impact our business, cash other health care providers may not achieve intended benefits, which
flows, financial condition and results of operations. could adversely affect our strategy or prospects.
In addition, our Medicare Advantage and Medicare prescription drug Out-of-network providers do not have an understanding with us
businesses face a number of other risks including potential about the amount of compensation due for their services. Some states
uncollectible receivables resulting from processing and/or verifying define by law or regulation the amounts due, but in most instances it
enrollment, inadequate underwriting assumptions, inability to receive is not defined or is established by a standard that is not clearly
and process correct information or increased medical or translatable into dollar terms. In such instances, providers may believe
pharmaceutical costs. Actual results may be materially different than that they were underpaid and may litigate or arbitrate their dispute
our assumptions and estimates regarding these complex and with us or try to recover from our customers the difference between
wide-ranging programs, which could have a material adverse effect on what we have paid them and the amount they charged us. The
our business, financial condition and results of operations. outcome of disputes where we do not have a provider contract may
cause us to pay higher medical or other benefit costs than we
projected.
CIGNA CORPORATION - 2014 Form 10-K 21