Health Net 2009 Annual Report Download - page 15

Ancillary and Other Provider Relationships
Our health plan subsidiaries arrange for ancillary and other provider services, such as ambulance,
laboratory, radiology, home health, chiropractic and acupuncture primarily through contracts with selected
providers in their service areas. These contracts generally have multi-year terms or annual terms with automatic
renewals and provide for payments on a variety of bases, including capitation, per diem rates, case rates and
discounted fee-for-service schedules. In certain cases, these provider services are included in contracts our health
plan subsidiaries have with PPGs and hospitals.
See “Item 1A. Risk Factors—If we are unable to maintain good relations with the physicians, hospitals and
other providers that we contract with, our profitability could be adversely affected” for additional information on
the risks associated with our provider relationships.
Additional Information Concerning Our Business
Competition
We operate in a highly competitive environment in an industry currently subject to significant changes from
business consolidations, new strategic alliances, legislative reform and market pressures brought about by a
better informed and better organized customer base. Our health plans face substantial competition from for-profit
and nonprofit HMOs, PPOs, self-funded plans (including self-insured employers and union trust funds), Blue
Cross/Blue Shield plans, and traditional indemnity insurance carriers, some of which have substantially larger
enrollments and greater financial resources than we do. The development and growth of companies offering
Internet-based connections between health care professionals, employers and members, along with a variety of
services, could also create additional competitors. We believe that the principal competitive features affecting our
ability to retain and increase membership include the range and prices of benefit plans offered, size and quality of
provider network, quality of service, responsiveness to user demands, financial stability, comprehensiveness of
coverage, diversity of product offerings, and market presence and reputation. The relative importance of each of
these factors and the identity of our key competitors vary by market. Over the past several years, a health plan’s
ability to interact with employers, members and other third parties (including health care professionals) via the
Internet has become a more important competitive factor. To that end, we continue to make technology
investments to enhance our electronic interactions with third parties. We believe that we compete effectively
against other health care industry participants in our West Operations segment.
Our primary competitors in California are Kaiser Permanente, Anthem Blue Cross of California,
UnitedHealth Group, Inc. and Blue Shield of California. Together, these four plans and Health Net account for a
majority of the insured market in California. Kaiser is the largest HMO in California based on number of
enrollees and Anthem Blue Cross of California is the largest PPO provider in California based on number of
enrollees. There are also a number of small, regional-based health plans that compete with Health Net in
California, mainly in the small business group market segment. In addition, two of the major national managed
care companies, Aetna, Inc. and CIGNA Corp., are active in California. Their respective commercial full-risk
market share is not as significant as our primary competitors in California and we believe that each remains in
California primarily to serve their national, self-funded accounts’ California employees.
Our largest competitor in Arizona is UnitedHealth Group, Inc. Our Arizona HMO also competes with Blue
Cross Blue Shield of Arizona, CIGNA, Aetna and Humana Inc. Our Oregon health plan competes primarily with
Kaiser, UnitedHealth Group, Providence, Regence Blue Cross/Blue Shield, PacificSource, Lifewise and ODS
Health Plans, Inc.
Marketing and Sales
We market our products and services to individuals and employer groups through inside sales staff,
independent brokers, agents and consultants and through the Internet. For our group health business, we market
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