Health Net 2006 Annual Report Download - page 135

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
is possible that in a particular quarter or annual period our results of operations and cash flow could be materially
affected by an ultimate unfavorable resolution of these proceedings depending, in part, upon the results of
operations or cash flow for such period. Due to the developments in these two cases during the fourth quarter of
2006, we recorded a litigation charge of $37.1 million representing our legal defense costs (see Note 14).
In Re Managed Care Litigation
Various class action lawsuits brought on behalf of health care providers against managed care companies,
including us, were transferred by the Judicial Panel on Multidistrict Litigation (“JPML”) to the United States
District Court for the Southern District of Florida for coordinated or consolidated pretrial proceedings in In re
Managed Care Litigation, MDL 1334. The first of such cases was filed against us on May 25, 2000. These
provider track actions generally alleged that the defendants, including us, systematically underpaid physicians
and other health care providers for medical services to members, have delayed payments to providers, imposed
unfair contracting terms on providers, and negotiated capitation payments inadequate to cover the costs of the
health care services provided and assert claims under the Racketeer Influenced and Corrupt Organizations Act
(RICO), ERISA, and several state common law doctrines and statutes. The lead physician provider track action
asserted claims on behalf of physicians and sought certification of a nationwide class.
On May 3, 2005, we and the representatives of approximately 900,000 physicians and state and other
medical societies announced that we had signed an agreement settling the lead physician provider track action.
The settlement agreement requires us to pay $40 million to general settlement funds and $20 million for
plaintiffs’ legal fees and to commit to several business practice changes. During the three months ended
March 31, 2005, we recorded a pretax charge of approximately $65.6 million in connection with the settlement
agreement, legal expenses and other expenses related to the MDL 1334 litigation. On July 6, 2006, we made
payments, including accrued interest, totaling approximately $61.9 million.
On September 26, 2005, the District Court issued an order granting its final approval of the settlement
agreement and directing the entry of final judgment. Four physicians appealed the order approving the
settlement, but each of the physicians moved to dismiss their appeals, and all of the appeals were dismissed by
the Eleventh Circuit by June 20, 2006. On July 19, 2006, joint motions to dismiss were filed in the District Court
with respect to all of the remaining tag-along actions in MDL 1334 filed on behalf of physicians. As a result of
the physician settlement agreement, the dismissals of the various appeals, and the filing of the agreed motions to
dismiss the tag along actions involving physician providers, all cases and proceedings relating to the physician
provider track actions against us have been resolved.
Other cases in MDL 1334 are brought on behalf of non-physician health care providers against us and other
managed care companies and seek certification of a nationwide class of similarly situated non-physician health
care providers. These cases are still pending but have been stayed in the multi-district proceeding. On
September 12, 2006, Judge Moreno dismissed one of those cases on grounds that the plaintiffs failed to file a
status report. The plaintiffs in that case subsequently filed a motion to vacate the dismissal in which they contend
that they did file a status report. We intend to defend ourselves vigorously in the remaining non-physician cases.
These proceedings are subject to many uncertainties, and, given their complexity and scope, their final outcome
cannot be predicted at this time. It is possible that in a particular quarter or annual period our results of operations
and cash flow could be materially affected by an ultimate unfavorable resolution of these proceedings depending,
in part, upon the results of operations or cash flow for such period. However, at this time, management believes
that the ultimate outcome of these proceedings should not have a material adverse effect on our financial
condition and liquidity.
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