Health Net 2003 Annual Report Download - page 26

groups and hospitals have become increasingly sophisticated in their review of claim payments and contractual terms in
an effort to maximize their payments from us and have increased their use of outside professionals, including accounting
firms and attorneys, in these efforts. These efforts and the litigation and arbitration that results from them could have a
material adverse effect on our financial condition.
Our forecasts and other forward-looking statements are based on a variety of assumptions that are subject to
significant uncertainties. Our performance may not be consistent with these forecasts and forward-looking statements.
From time to time in press releases and otherwise, we may publish forecasts or other forward-looking statements
regarding our future results, including estimated revenues, net earnings and other operating and financial metrics. Any
forecast of our future performance reflects various assumptions. These assumptions are subject to significant
uncertainties, and as a matter of course, any number of them may prove to be incorrect. Further, the achievement of any
forecast depends on numerous risks and other factors, including those described in this Annual Report on Form 10-K,
many of which are beyond our control. As a result, we cannot assure that our performance will be consistent with any
management forecasts or that the variation from such forecasts will not be material and adverse. You are cautioned not to
base your entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize the
entire publicly available mix of historical and forward-looking information, as well as other available information
affecting us and our services, when evaluating our prospective results of operations.
The markets in which we do business are highly competitive and our inability to effectively compete could have a
material adverse effect on our business, results of operation and financial condition.
We compete with a number of other entities in the geographic and product markets in which we operate, some of
which other entities may have certain characteristics, capabilities or resources that give them an advantage in competing
with us. These competitors include HMOs, PPOs, self-funded employers, insurance companies, hospitals, health care
facilities and other health care providers. In addition, financial services or other technology-based companies could enter
the market and compete with us on the basis of their streamlined administrative functions. Customers of ours may decide
to perform for themselves functions or services currently provided by us, which could result in a decrease in our revenues.
Our providers and suppliers may decide to market products and services to our customers in competition with us. In
addition, significant merger and acquisition activity has occurred both in our industry and in industries which act as our
suppliers, such as the hospital, physician, pharmaceutical and medical device industries. This activity may create stronger
competitors and/or result in higher health care costs. Health care providers may establish provider service organizations to
offer competing managed care products. To the extent that there is strong competition or that competition intensifies in
any market, our ability to retain or increase customers, our revenue growth, our pricing flexibility, our control over
medical cost trends and our marketing expenses may all be adversely affected.
We face risks related to litigation, which, if resolved unfavorably, could result in substantial monetary damages.
We are subject to a variety of legal actions to which any corporation may be subject, including employment and
employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims, shareholder
suits, including for securities fraud, and intellectual property related litigation. In addition, we incur and likely will
continue to incur potential liability for claims particularly related to our business, such as failure to pay for or provide
health care, poor outcomes for care delivered or arranged, provider disputes, including disputes over withheld
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 various managed care organizations, including us. In some of the cases pending against
us, substantial non-economic or punitive damages are being sought. While we currently have insurance coverage for some
of these potential liabilities, others (such as punitive damages), may not be covered by insurance, the insurers may dispute
coverage or the amount of insurance may not be sufficient to cover the damages awarded. In addition, insurance coverage
for all or certain forms of liability may become unavailable or prohibitively expensive in the future or the deductible on
any such insurance coverage could be set at a level which would result in us effectively self insuring cases against us. The
deductible on our errors and omissions (“E&O”) insurance has reached such level. Given the amount of the deductible, the
only cases which would be covered by our E&O insurance are those involving catastrophic claims. We cannot predict the
outcome of any lawsuit with certainty, and we are incurring expenses in the defense of these matters. In addition, recent
court decisions and legislative activity may increase our exposure for any of these types of claims. Although we have
established reserves for litigation costs, we cannot assure you that our recorded reserves are adequate to cover such costs.
Therefore, these legal actions could have a material adverse effect on our financial condition or results of operations and
could prompt us to change our operating procedures.
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