Health Net 2009 Annual Report Download - page 40

Buyer’s consent under the Non-Competition Agreement, which the Buyer could withhold in its discretion. In the
event that we are unable to engage in a business due to the terms of the Non-Competition Agreement, this could
have an adverse effect on our prospects, business, financial condition or results of operations.
If we fail to effectively maintain our information management systems, it could adversely affect our
business.
Our business depends significantly on effective information systems. The information gathered and
processed by our information management 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. Our merger, acquisition and divestiture activity also requires transitions to or from, and
the integration of, various information management systems.
Any difficulty or unexpected delay associated with the transition to or from information systems, including
the current transition of our data center operations to a third-party vendor, any inability or failure to properly
maintain information management 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. See “—We are subject to risks associated with outsourcing
services and functions to third parties.”
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, third party service providers of actuarial services, 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. Our outsourcing arrangements could be adversely impacted by
changes in the vendors’ operations or financial condition or other matters outside of our control. If we fail to
adequately monitor and regulate the performance of our third party vendors, we could be subject to additional
risk. 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. Moreover, if these vendor relationships were terminated for any reason, we may not be able to find
alternative partners in a timely manner or on acceptable financial terms, and may incur significant costs in
connection with any such vendor transition. As a result, we may not be able to meet the full demands of our
customers and, in turn, our business, financial condition and results of operations may be harmed. 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,
unanticipated delays in transitioning our operations to the third party vendor 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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