Health Net 2013 Annual Report Download - page 44

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business outside of the United States, including international economic and political conditions, and additional costs
associated with complying with foreign laws and U.S. laws applicable to operations in foreign jurisdictions, such as the
Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010.
We face a wide range of risks, and our success depends on our ability to identify, prioritize and appropriately manage
our enterprise risk exposures.
As a large company operating in a complex and highly-regulated industry, we encounter a variety of risks. The
risks we face include, among others, a range of strategic, regulatory, competitive, financial, operational, information
technology, information security, reputational, external and industry risks identified in this Risk Factors discussion. The
third party vendors and service providers to which we outsource key functions are required to achieve and maintain
compliance with applicable federal and state laws and regulations and contractual requirements. Any violations of, or
noncompliance with, laws and/or regulations governing our business, or the terms of our contracts, by third party
vendors or service providers could increase our enterprise risk exposure. As we consider further outsourcing of key
functions, this risk increases. We continue to devote resources to further develop and integrate our enterprise-wide risk
management processes. Failure to identify, prioritize and appropriately manage or mitigate these risks could adversely
affect our profitability, our ability to retain or grow business or adversely affect our business, financial condition or
results of operations.
If we fail to develop and maintain satisfactory relationships on competitive terms with the hospitals, provider groups
and other providers that provide services to our members, our profitability could be adversely affected.
We contract with hospitals, provider groups and other providers as a means to provide access to health care
services for our members, to manage health care costs and utilization and to monitor the quality of care being delivered.
In any particular market, providers could refuse to contract with us, demand higher payments or take other actions,
including litigation, which could result in higher health care costs, less desirable or uncompetitive products for
customers and members, disruption to provider access or limited access for current members or to support growth, or
difficulty in meeting regulatory or accreditation requirements. In some markets, certain providers, particularly hospitals,
physician/hospital organizations and multi-specialty physician groups, may have significant market positions or even
monopolies. If these providers refuse to contract with us or utilize their market position to negotiate contract terms that
are unfavorable to us or otherwise place us at a competitive disadvantage, our ability to market our products or to be
profitable in those areas could be adversely affected. The continuing trend of consolidation of hospitals, provider groups
and other providers may further enhance this risk, particularly if such consolidation involves any of the hospitals,
providers or provider groups that we currently have under contract.
As the health care environment has evolved, we have developed and are continuously working to monitor
strategic provider relationships with respect to the new market driven by, among other things, the ACA, the CCI and
other federal and state health care reforms, regulations and initiatives. Accordingly, our business strategy includes
creating tailored network products and other customized customer solutions through, among other things, strategic
provider relationships that help manage the cost of care. For example, our product portfolios and services include
offerings such as SmartCareSM, ExcelCareSM and CommunityCareSM, which are recent collaborations with our provider
partners. Through these types of arrangements, we offer tailored network product offerings served by more cost-
effective physician groups and hospitals. Membership in our tailored network products was approximately 38% of total
commercial risk membership as of December 31, 2013, compared with 35% as of December 31, 2012. For additional
information on our tailored network products and innovative provider relationships, see “Item 1. Business-Segment
Information-Western Region Operations Segment-Managed Health Care Operations.” Continued membership growth in
our tailored network products and continued development of strategic provider relationships are important parts of our
business strategy. In addition, we will need to finalize our provider network on satisfactory terms to support our
participation in the CCI, including the provision of LTSS benefits for dual eligibles and other individuals, a service that
we have not previously provided or managed. However, there can be no assurance that we will be able to successfully
implement these strategic initiatives, that the products we design in collaboration with certain providers will be
successful or developed within the time periods expected, or the products that we offer will be preferable to similar
products of our competitors. For additional discussion of the risks associated with our participation in the CCI, see “—
Our participation in the duals demonstration portion of the California Coordinated Care Initiative in Los Angeles and
San Diego Counties may prove to be unsuccessful for a number of reasons.” Failure to successfully implement these
strategic initiatives may have an adverse impact on our business, results of operations, financial condition and cash
flows.