Health Net 2007 Annual Report Download - page 43

reimbursements. In addition, the parties have agreed to jointly request that the District Court forego the
imposition of any further sanctions, penalties or fines against Health Net or its representatives. These amounts
have been accrued for in our consolidated statements of operations for the year ended December 31, 2007.
Due to the length of time it has taken to negotiate a series of complex settlement terms with plaintiffs, we
agreed with plaintiffs to deposit $160 million into an escrow fund to be used as the cash settlement fund
referenced above when a settlement is finally agreed to and approved by the District Court. On January 28, 2008,
the $160 million was placed into an escrow account where it will accrue interest until the settlement is finalized.
If the settlement is finalized and approved by the District Court, the interest earned on the escrow funds will be
used for the benefit of class members. If the settlement is not finalized or approved, the escrow funds together
with the interest will be returned to us. Once a definitive settlement agreement is entered into and approved by
the District Court, distributions will be made to class members, Health Net will be released from further liability
and the cases will be dismissed.
The settlement of these proceedings is not final and continues to be subject to change until a definitive
settlement agreement is entered into and approved by the District Court. If the Court does not approve the terms of
the definitive agreement, the parties would attempt to renegotiate the portion(s) of the agreement that were not
acceptable to the Court. If we were unable to reach an agreement that is acceptable to all parties and the Court, these
proceedings would continue. If the proceedings were to continue, we would continue to defend ourselves vigorously
in this litigation. Given the complexity and scope of this litigation it is possible that an unfavorable resolution of
these proceedings could have a material adverse effect on our results of operations and/or financial condition,
depending, in part, upon our results of operations or cash flow at that time. In addition, the amount involved could
be greater than the settlement amount agreed to by the parties in the agreement in principle described above.
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. As set forth below, all such provider track actions that were filed against
us have been dismissed, including four cases that were voluntarily dismissed without prejudice.
The first provider track case 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 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 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 6, 2006, we made payments, including accrued interest, totaling
approximately $61.9 million pursuant to the settlement agreement. 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
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