Health Net 2004 Annual Report Download - page 24

We are also subject to various federal and state governmental audits and investigations. These audits and investigations could
result in the loss of licensure or the right to participate in certain programs, or the imposition of fines, penalties and other sanctions. In
addition, disclosure of any adverse investigation or audit results or sanctions could negatively affect our reputation in various markets
and make it more difficult for us to sell our products and services.
Proposed federal and state legislation and regulations 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 and regulatory initiatives at
the federal and state levels 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 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;
• increase minimum capital or risk based capital requirements;
• expedite or modify grievance and appeals procedures;
• hold health plans liable for medical malpractice;
• 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;
• segment existing markets to create an unsuitable regulatory environment;
• mandate certain benefits and services, including mental health parity, that could increase costs;
• add further restrictions and administrative and disclosure requirements related to compensatory arrangements pertaining to
agents and brokers in connection with the sale of products;
• restrict a health plan’s ability to select and/or terminate providers; and
We cannot predict the outcome of any of these legislative or regulatory proposals, nor the extent to which we may be affected by
the enactment of any such legislation or regulations. 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.
A significant reduction in revenues from the government programs in which we participate could have an adverse effect on our
business, financial condition and results of operations.
• regulate health care premiums.
Approximately 40% of our revenues relate to federal, state and local government health care coverage programs, such as
Medicare, Medicaid and TRICARE. Under government-funded health programs, the
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