Health Net 2013 Annual Report Download - page 17

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The ACA eliminated medical underwriting for medical insurance coverage decisions, including with respect to
preexisting conditions (known as “guaranteed issue”). For additional detail on these and other requirements of the ACA,
as well as certain associated risks, see “—Government Regulation—Health Care Reform Legislation and
Implementation” and “Item 1A. Risk Factors—Federal health care reform legislation has had and will continue to have
an adverse impact on the costs of operating our business and could materially adversely affect our business, cash flows,
financial condition and results of operations.”
Information Technology
Our business depends significantly on effective and efficient 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 that support our various
lines of business and we develop new systems as needed to keep pace with continuing changes in technology and to
support our operational needs, including potential business expansions. These systems require the ongoing commitment
of significant resources for continual maintenance, upgrading and enhancement to meet our operational needs, evolving
industry and regulatory standards, compliance with legal requirements (such as ICD-10 (as defined below) and
changing customer preferences. We have partnered with third parties to support our information technology systems and
to help design, build, test, implement and maintain our information management systems, and we are considering
expanding our outsourced information technology arrangements. Our merger, acquisition and divestiture activity also
requires transitions to or from, and the integration of, various information management systems within our overall
enterprise architecture.
In 2013, we continued our efforts on implementing regulatory and legal compliance requirements. Furthermore,
CMS adopted a new coding set for diagnoses, commonly referred to as ICD-10, which significantly expanded the
number of codes utilized in claims processing. The new ICD-10 coding set is currently required to be implemented by
October, 2014. We will be required to incur significant additional expenses to implement and support the new ICD-10
coding set. In addition, our implementation and support of the requirements of the ACA and the CCI, including the dual
eligibles demonstration, have required, and will continue to require, will require the expenditure of significant resources
as we continue to adapt to the changing guidance.
For additional information on our information technology and associated risks, see “Item 1A. Risk Factors—If we
fail to effectively maintain our information management systems, it could adversely affect our business”, “Item 1A. Risk
Factors—We are subject to risks associated with outsourcing services and functions to third parties” and “Item 1A.
Risk Factors—If we fail to comply with requirements relating to patient privacy and information security, including
taking steps to ensure that our business associates who obtain access to sensitive patient information maintain the
privacy and security of such information, our reputation and business operations could be materially adversely
affected.”
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, along with the inherent features of a capitation payment
model, reduces inappropriate use of medical resources and achieves efficiencies in referring cases to the most
appropriate providers. We provide care management and case management to our members and 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 health care organizations. HMOs that apply for
accreditation of particular product lines receive accreditation if they comply with review requirements and quality
standards. The Medicare line of business of our California HMO has received NCQA accreditation with a score of
“excellent,” which is the highest score NCQA awards. HN California's commercial HMO/POS, HNL's PPO and our