Health Net 2009 Annual Report Download - page 17

and improve our technology environment, and to provide technology renewal for desktops, networks, and
servers. In 2009, we made significant progress in improving our technology platform by renewing technology
and initiating the transition of our data center operations to a third-party vendor. We expect to complete the move
of our data center operations to our third party vendor in early 2010. Technology renewal and optimization
initiatives will continue throughout 2010. Additionally, we will begin work in 2010 on the third phase of our IT
strategy, a multi-year effort to evolve and advance our business process and business service focused systems,
and to modernize our information systems, applications and enterprise architecture. This work will support
industry imperatives, position us for potential health care reform, improve our overall ability to respond to
changes in the marketplace, and make it easier to do business with us. However, there are risks associated with
these efforts, including the risks associated with moving our data center operations to a third-party vendor. See
“Item 1A. Risk Factors—If we fail to effectively maintain our management information systems, it could
adversely affect our business” and “—We are subject to risks associated with outsourcing services and functions
to third parties.”
Medical Management
We believe that managing health care costs is an essential function for a managed care company. Among the
medical management techniques we utilize to contain the growth of health care costs are pre-authorization or
certification for outpatient and inpatient hospitalizations and a concurrent review of active inpatient hospital stays
and discharge planning. We believe that this authorization process reduces inappropriate use of medical
resources and achieves efficiencies in referring cases to the most appropriate providers. We also contract with
third parties to manage certain conditions such as neonatal intensive care unit admissions and stays, as well as
chronic conditions such as asthma, diabetes and congestive heart failure. These techniques are widely used in the
managed care industry and are accepted practices in the medical profession.
Accreditation
We pursue accreditation for certain of our health plans from the National Committee for Quality Assurance
(“NCQA”) and the Utilization Review Accreditation Commission (“URAC”). NCQA and URAC are
independent, non-profit organizations that review and accredit HMOs and other healthcare organizations. HMOs
that comply with review requirements and quality standards receive accreditation. The commercial lines of
business of our Arizona and California HMO subsidiaries have both received NCQA accreditation with a score
of “excellent,” which is the highest score NCQA awards. HN California’s Medicare and Medicaid lines of
business also received NCQA accreditation with a score of “excellent.” Our MHN subsidiary has received URAC
accreditation.
Government Regulation
Our business is subject to comprehensive federal regulation and state regulation in the jurisdictions in which
we do business. These laws and regulations govern how we conduct our businesses and result in additional
requirements, restrictions and costs to us. We believe we are in compliance in all material respects with all
current state and federal laws and regulations applicable to our businesses. Certain of these laws and regulations
are discussed below.
Federal Legislation and Regulation
Medicare Legislation and Regulation. Comprehensive legislation, including the MMA and the Medicare
Improvements for Patients and Providers Act of 2008 (“MIPPA”), governs our Medicare program. In addition,
our Medicare contracts and our provision of administrative services pursuant to the United Administrative
Services Agreements are subject to regulation by CMS. CMS has the right to audit Medicare contractors and the
health care providers and administrative contractors who provide certain services on their behalf to determine the
quality of care being rendered and the degree of compliance with CMS’ contracts and regulations.
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