Health Net 2013 Annual Report Download - page 13

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payment charges, TRICARE Prime enrollees pay co-payments each time they receive medical services from a civilian
provider. TRICARE Prime enrollees may opt, on a case-by-case basis, for a point-of-service option in which they are
allowed to self-refer but incur a deductible and a co-payment.
Under TRICARE Extra, eligible beneficiaries may utilize a TRICARE network provider but incur a deductible
and co-payment which is greater than the TRICARE Prime co-payment. Under TRICARE Standard, eligible
beneficiaries may utilize a TRICARE authorized provider who is not a network provider but pay a higher co-payment
than under TRICARE Prime or TRICARE Extra.
The T-3 contract has five one-year option periods, however, the Department of Defense exercised option period 2
(without exercising option period 1), due to the delay of approximately one year in the government's initial award of the
T-3 contract for the North Region. Accordingly, option period 2 commenced on April 1, 2011. On March 22, 2012, the
Department of Defense exercised option period 3, which commenced on April 1, 2012 and ended on March 15, 2013.
On March 28, 2013, the DoD exercised option period 4, which commenced on April 1, 2013 and is scheduled to end on
March 31, 2014. The Department of Defense has notified us of its intent to exercise option period 5, which would
extend our T-3 contract through March 31, 2015. The DoD has informed us that it intends to request that we submit a
proposal to add three additional one-year option periods to the T-3 contract. If we are successful in negotiating a
contract modification to the T-3 contract that adds the three additional one-year option periods and the DoD exercises
all three option periods, the T-3 contract would conclude March 31, 2018. The T-3 contract services are currently
structured as cost reimbursement arrangements for health care costs plus administrative fees received in the form of
fixed prices, fixed unit prices, and contingent fees and payments based on various incentives and penalties.
For additional information regarding our previous TRICARE contract for the North Region and the T-3 contract
for the North Region, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 1A. Risk Factors—A significant reduction in revenues from the government programs in which
we participate or other changes to these programs could have a material adverse effect on our business, financial
condition or results of operations.”
Other Department of Defense Contracts
Our wholly owned subsidiary, MHN Government Services, is party to a MFLC contract that was awarded by the
Department of Defense to implement, administer and monitor the non-medical counseling MFLC program. The contract
was initially awarded in August of 2012 and is a second-generation contract under the MFLC program. The contract has
a five-year term that includes a 12-month base period and four 12-month option periods. The Department of Defense
has exercised the first option period under the contract that runs from August 15, 2013 through August 14, 2014. For the
year ended December 31, 2013, revenues from the MFLC contracts were $104.8 million. For additional information on
the risks associated with our MFLC contract, see “Item 1A. Risk Factors—A significant reduction in revenues from the
government programs in which we participate or other changes to these programs could have a material adverse effect
on our business, financial condition or results of operations.”
Patient Centered Community Care Program
In September 2013, the Department of Veterans Affairs (“VA”) awarded HNFS a contract under its new Patient
Centered Community Care program (“PC3 Program”). This new PC3 Program provides eligible veterans coordinated,
timely access to care through a comprehensive network of non-VA providers who meet VA quality standards when a
local VA medical center cannot readily provide the care. HNFS will support the VA in providing care to veterans in
three of the six PC3 Program regions. These three regions, Regions 1, 2 and 4, encompass all or portions of 37 states,
the District of Columbia, Puerto Rico and the Virgin Islands. The PC3 Program contract term includes a base period of
performance through September 30, 2014 and four one-year option periods that may be exercised by the VA.
Additionally, the VA will have the ability to extend the PC3 Program contract an additional two years and six months
based on the VA's need. Delivery of care under this new PC3 Program contract will be staggered with delivery of care
commencing in January, February and March of 2014 for Regions 1 and 4, and in March 2014 for Region 2.
Other Veterans Affairs Contracts
During 2013, HNFS administered six contracts with the VA to manage community-based outpatient clinics in
four states. HNFS also administered or supported one other contract with the VA for 152 VA medical centers for claims,
recovery and audit services. Total revenues for our VA business were approximately $7.7 million for the year ended
December 31, 2013. These revenues are derived from service fees received and have no insurance risk associated with
them.