Health Net 2003 Annual Report Download - page 23

Proposed federal and state legislation affecting the managed health care industry could have an adverse effect on
our operations.
There are frequently legislative proposals before the United States Congress and state legislatures which, if enacted,
could materially affect the managed health care industry and the regulatory environment. Recent financial difficulties of
certain health care service providers and plans and/or continued publicity of the health care industry could alter or
increase legislative consideration of these or additional proposals. These proposals include federal and state “patients’ bill
of rights” legislation and other initiatives which, if enacted, could have significant adverse effects on our operations,
including subjecting us to additional litigation risk and regulatory compliance costs. Such measures propose, among other
things, to:
• expand health plan exposure to tort and other liability under federal and/or state law, including for coverage
determinations, provider malpractice and care decisions;
• restrict a health plan’s ability to limit coverage to medically necessary care;
• require third party review of certain care decisions;
• expedite or modify grievance and appeals procedures;
• restrict the ability of health plans to share or shift the cost of health care services to providers or members;
• reduce the reimbursement or payment levels for services provided under government programs such as Medicare
or Medicaid;
• enhance the providers’ rights of timely payment and access to appeal processes;
• mandate certain benefits and services that could increase costs; and
• restrict a health plan’s ability to select and/or terminate providers.
We cannot predict the outcome of any of these legislative proposals nor the extent to which we may be affected by
the enactment of any such legislation. Legislation or regulation which causes us to change our current manner of operation
or increases our exposure to liability could have a material adverse effect on our results of operations, financial condition
and ability to compete.
Our businesses are highly regulated.
Our business is subject to extensive federal and state laws and regulations, including, but not limited to, financial
requirements, licensing requirements, enrollment requirements and periodic examinations by governmental agencies.
These laws and regulations are generally intended to benefit and protect providers and health plan members rather than
stockholders of managed health care companies such as Health Net. The laws and rules governing our business and
interpretations of those laws and rules are subject to frequent change. Existing or future laws and rules could force us to
change how we do business and may restrict our revenue and/or enrollment growth, and/or increase its health care and
administrative costs, and/or increase our exposure to liability with respect to members, providers or others. In particular,
our HMO and insurance subsidiaries are subject to regulations relating to cash reserves, minimum net worth, premium
rates, and approval of policy language and benefits. Although these regulations have not significantly impeded the growth
of our business to date, there can be no assurance that we will be able to continue to obtain or maintain required
governmental approvals or licenses or that regulatory changes will not have a material adverse effect on our business.
Delays in obtaining or failure to obtain or maintain governmental approvals, or moratoria imposed by regulatory
authorities, could adversely affect our revenue or the number of our members, increase costs or adversely affect our
ability to bring new products to market as forecasted.
In December 2000, the Department of Health and Human Services promulgated regulations under HIPAA related to
the privacy and security of electronically transmitted PHI. The regulations require health plans, clearinghouses and
providers to (a) comply with various requirements and restrictions related to the use, storage and disclosure of PHI, (b)
adopt rigorous internal procedures to safeguard PHI and (c) enter into specific written agreements with business associates
to whom PHI is disclosed. The regulations also establish significant criminal penalties and civil sanctions for non-
compliance. In addition, the regulations could expose us to additional liability for, among other things, violations of the
regulations by our business associates. States may enact laws imposing privacy standards that differ from and/or are more
strict than those imposed under HIPAA. The states’ ability to promulgate stricter rules, and uncertainty regarding many
aspects of the regulations, make compliance with the relatively new regulatory landscape difficult. We spent
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