Health Net 2013 Annual Report Download - page 47

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conditions, another economic downturn or continued government efforts to contain medical costs and health care
related expenditures could continue to adversely affect state and federal budgets, including California's, resulting in
reduced or delayed reimbursements or payments in our federal and state government-funded health care coverage
programs, including Medicare and Medi-Cal or reimbursements or payments in these programs that do not keep pace
with our cost trends. For additional discussion on budget issues at the federal level and the potential risks to our
business, see “—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.” If rate cuts are implemented retrospectively to payments already negotiated and/or received from the
government, it could adversely affect our revenues and financial results. This risk may be amplified as our Medi-Cal
membership may increase through, among other things, potential Medicaid expansion in California and our
participation in the CCI. However, the impact of such cuts could be limited since they would need to be reconciled with
minimum payment rates for primary care physicians dictated by the ACA for 2013 and 2014. See “—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” for additional information
regarding proposals to reduce California's Medi-Cal provider reimbursement rates and other state and federal budgetary
matters that may impact us. In addition, continued state and federal budgetary pressures could cause new or higher
levels of assessments or taxes for our commercial programs, such as surcharges on select fee-for-service and capitated
medical claims or premium taxes on insurance companies and HMOs, and could adversely affect our results of
operations. Moreover, any enrollment freeze or significant delay in reimbursement payment from government programs
in which we participate could adversely affect our business, financial condition, cash flows and results of operations.
For example, in the past, budget issues have led the State of California to delay certain of its monthly Medicaid
payments to us. Any such irregularity in the timing of these payments in future periods may adversely impact our
operating cash flow from quarter to quarter depending on the timing of such payments.
If we fail to effectively maintain our information management systems, it could adversely affect our business.
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 different information systems for our various businesses and
these systems require the commitment of significant resources for continual maintenance, upgrading and enhancement
to meet our operational needs and evolving industry and regulatory standards. 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. 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.
We are in the process of reducing the number of systems that we operate. Any difficulty or unexpected delay
associated with the transition to or from information systems, including in connection with the decommissioning of a
system or the implementation of a new system; any inability or failure to properly maintain information management
systems; any failure to efficiently and effectively consolidate our information systems, including to renew technology,
maintain technology currency, keep pace with evolving industry standards or eliminate redundant or obsolete
applications; 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 or other legal or compliance problems,
significant increases in administrative expenses and/or other adverse consequences. If for any reason there is a business
continuity interruption resulting in loss of access to or availability of data, we may, among other things, not be able to
meet the full demands of our customers and, in turn, our business, results of operations, financial condition and cash
flow could be adversely impacted. In addition, we obtain significant portions of our systems-related and other services
and facilities, including our data center, from independent third parties and are considering expanding our outsourced
information technology arrangements. This makes 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.”
CMS adopted a new coding set for diagnoses, commonly referred to as ICD-10, which significantly expands the
number of codes utilized. The new ICD-10 coding set is currently required to be implemented by October 2014. We will
be required to incur additional expenses to implement and support the new ICD-10 coding set. If we have not
adequately implemented the requirements of the ACA and ICD-10 within the time period required, our results of
operations, financial condition and cash flows would be adversely affected.