Health Net 2007 Annual Report Download - page 36

If we fail to effectively maintain our management information systems, it could adversely affect our
business.
Our business depends significantly on effective information systems. The information gathered and
processed by our management information systems assists us in, among other things, pricing our services,
monitoring utilization and other cost factors, processing provider claims, billing our customers on a timely basis
and identifying accounts for collection. Our customers and providers also depend upon our information systems
for membership verification, claims status and other information. We have many different information systems
for our various businesses and these systems require continual maintenance, upgrading and enhancement to meet
our operational needs. Moreover, our merger, acquisition and divestiture activity requires transitions to or from,
and the integration of, various information management systems.
Health Net’s operations strategy team is currently reviewing options for transitioning to a single technology
platform companywide to gain operational and cost efficiencies. We believe that by consolidating our current
systems, we will gain operational and cost efficiencies. Transitioning to a single in-house system and utilizing
varying levels of system outsourcing are options currently under consideration by management. See “Item 1.
Business—Additional Information Concerning Our Business—Health Net Systems Consolidation Project” for
additional information regarding this consolidation project.
Any difficulty or unexpected delay associated with the transition to or from information systems, any
inability or failure to properly maintain management information systems, or any inability or failure to
successfully update or expand processing capability or develop new capabilities to meet our business needs,
could result in operational disruptions, loss of existing customers, difficulty in attracting new customers, disputes
with customers and providers, regulatory problems, significant increases in administrative expenses and/or other
adverse consequences. In addition, we may, from time-to-time, obtain significant portions of our systems-related
or other services or facilities from independent third parties, which may make our operations vulnerable to
adverse effects if such third parties fail to perform adequately.
We are subject to risks associated with outsourcing services and functions to third parties.
We contract with independent third party vendors who provide services to us and our subsidiaries or to
whom we delegate selected functions. These third party vendors include, but are not limited to, information
technology system providers, medical management providers, claims administration providers, billing and
enrollment providers, call center providers and specialty service providers. Our arrangements with third party
vendors may make our operations vulnerable if those third parties fail to satisfy their obligations to us, including
their obligations to maintain and protect the security and confidentiality of our information and data, as a result
of our failure to adequately monitor and regulate their performance, changes in the vendors’ operations or
financial condition or other matters outside of our control. Violations of laws or regulations governing our
business by third party vendors could increase our exposure to liability or otherwise increase the costs associated
with the operation of our business. In addition, to the extent we outsource selected services or selected functions
to third parties in foreign jurisdictions, we could be exposed to risks inherent in conducting business outside of
the United States, including international economic and political conditions, additional costs associated with
complying with foreign laws and fluctuations in currency values.
On November 8, 2007, we announced that we are undertaking a reorganization of our management
structure, which is expected to include additional outsourcing of claims administration and certain other
operations to third party vendors. Additional outsourcing projects such as those included as part of the
reorganization could increase our exposure to the risks outlined above. In addition, we may not fully realize the
anticipated economic and other benefits from our outsourcing projects or other relationships we enter into with
third party vendors, as a result of regulatory restrictions on outsourcing or otherwise. This could result in
substantial costs or other operational or financial problems that could adversely impact our results of operations.
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