Health Net 2004 Annual Report Download - page 26

of our HMO subsidiaries for unpaid provider claims has not been definitively settled. There can be no assurance that our subsidiaries
will not be liable for unpaid provider claims. There can also be no assurance that providers with whom we contract will properly
manage the costs of services, maintain financial solvency or avoid disputes with secondary providers, the failure of any of which
could have an adverse effect on the provision of services to members and our operations.
Some providers that render services to our members and insureds are not contracted with our plans and insurance companies. In
those cases, there is no pre-established understanding between the provider and the plan about the amount of compensation that is due
to the provider. In some states and product lines, the amount of compensation is defined by law or regulation, but in most instances it
is either not defined or it is established by a standard that is not clearly translated into dollar terms. In such instances providers may
believe they are underpaid for their services and may either litigate or arbitrate their dispute with the plan or balance bill our member.
We may then have an obligation to protect our members against financial harm, either by paying the provider the additional amount
demanded or by reimbursing the member for his/her out-of-pocket payment. The uncertainty of the amount to pay and the possibility
of subsequent adjustment of the payment could adversely affect our financial position or results of operations.
Provider groups and hospitals have in certain situations commenced litigation and/or arbitration proceedings against us to
recover amounts they allege to be underpayments due to them under their contracts with us. We believe that provider 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. During the fourth quarter of 2004, we recorded a $252 million pre-tax charge. Of that amount, $169 million related to
expenses associated with settlements involving provider disputes that have been, or are currently in the process of being, resolved. For
additional information regarding provider disputes see “Item 3. Legal Proceedings—Provider Disputes.”
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 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. For example, during 2004, we experienced higher than expected commercial health care costs and
lower than expected enrollment in our health plans which had a negative impact on our 2004 results of operations. 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
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