Health Net 2007 Annual Report Download - page 141

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Miscellaneous Proceedings
We are the subject of a regulatory investigation in New Jersey that relates principally to the timeliness and
accuracy of our claims payment practices for services rendered by out-of-network providers. The regulatory
investigation includes an audit of our claims payment practices for services rendered by out-of-network providers
for 1996 through 2005 in New Jersey. The New Jersey Department of Banking and Insurance (DOBI) has
informed us that, based on the results of the audit, it will require us to remediate certain claims payments for this
period and will assess a regulatory fine against us. During the three months ended September 30, 2007, we
reached an agreement with DOBI regarding most of the claims that will require remediation and had preliminary
discussions with DOBI regarding the fine that it expects to impose. We expect to finalize an agreement with
DOBI on the remainder of the claims issues, reach an agreement upon the fine to be assessed and enter into a
consent order in the near future. At this time, management believes that the ultimate outcome of this regulatory
investigation should not have a material adverse effect on our financial condition and liquidity.
On February 13, 2008, the New York Attorney General (“NYAG”) announced that his office is conducting
an industry-wide investigation into the manner in which health insurers calculate “usual, customary and
reasonable” charges for purposes of reimbursing members for out-of-network medical services. The NYAG’s
office has issued subpoenas to 16 health insurance companies, including us, in connection with this investigation.
As described by the NYAG in a press conference on February 13, 2008, the threatened claims appear to be
similar to those asserted by the plaintiffs in the McCoy, Wachtel and Scharfman cases described above. We
intend to respond to the subpoena and cooperate with the NYAG as appropriate in his investigation.
On September 12, 2007, HNNJ received notification from NJDMAHS that it would assess HNNJ’s provider
network panels as of September 24, 2007 and that NJDMAHS may impose a daily penalty for each network
deficiency (originally $250/day, potentially to increase to $500/day). We are actively working to remediate any
deficiencies, and the NJDMAHS has acknowledged our progress in this area. On November 29, 2007, HNNJ
received a second notification from NJDMAHS imposing a daily penalty as of August 15, 2007 (originally
$250/day, increased to $500/day as of December 12, 2007) against HNNJ until we have demonstrated that our
continuity of care for care management of certain of our populations is in compliance with contractual requirements.
We have filed objections to and appealed this Notice of Imposition of Liquidated Damages on grounds including
lack of due process. HNNJ is actively working to remediate any existing deficiencies associated with the continuity
of care for care management, and expects to complete these efforts in late 2008.
In the ordinary course of our business operations, we are also subject to periodic reviews by various
regulatory agencies with respect to our compliance with a wide variety of rules and regulations applicable to our
business, including, without limitation, rules relating to pre-authorization penalties, payment of out-of-network
claims and timely review of grievances and appeals, which may result in remediation of certain claims and the
assessment of regulatory fines or penalties.
In addition, in the ordinary course of our business operations, we are also party to various other legal
proceedings, including, without limitation, litigation arising out of our general business activities, such as
contract disputes, employment litigation, wage and hour claims, real estate and intellectual property claims and
claims brought by members seeking coverage or additional reimbursement for services allegedly rendered to our
members, but which allegedly were either denied, underpaid or not paid, and claims arising out of the acquisition
or divestiture of various business units or other assets. We are also subject to claims relating to the performance
of contractual obligations to providers, members, employer groups and others, including the alleged failure to
properly pay claims and challenges to the manner in which we process claims. In addition, we are subject to
claims relating to the insurance industry in general, such as claims relating to reinsurance agreements and
rescission of coverage and other types of insurance coverage obligations.
These other regulatory and legal 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
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