Health Net 2014 Annual Report Download - page 38

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including, among others, with respect to the efficient and secure transfer of information and data and the management
of our workforce, which will require us to coordinate and monitor the transition through our dedicated governance and
oversight structure.
The success of our business will depend in part on Cognizant’s ability to perform the contracted functions and
services in a timely, satisfactory, and compliant manner. If we experience a loss or disruption in the provision of any of
these functions or services, or they are not performed in a timely, satisfactory or compliant manner, we may not fully
achieve anticipated cost savings or other expected benefits of the transaction; we may be subject to regulatory
enforcement actions; we may be vulnerable to security breaches that threaten the security and confidentiality of our
information and data; we may not be able to meet the full demands of our customers or be subject to claims against us
by our members; and we may have difficulty in finding alternate providers on terms favorable to us, or at all. Any of the
foregoing could have an adverse impact on our business.
While the Cognizant MSA requires Cognizant to meet all regulatory compliance requirements with respect to the
services provided, we ultimately retain responsibility for regulatory compliance. If we fail to adequately monitor and
regulate Cognizant’s performance throughout the term of the Cognizant MSA, we may be subject to additional risk. For
additional information on these and other risks associated with third party arrangements such as the Cognizant
transaction, please refer to the risk factors set forth below under the heading “—We are subject to risks associated with
outsourcing services and functions to third parties” and “—Federal and state audits, reviews and investigations of us
and our subsidiaries could have a material adverse effect on our operations, financial condition and cash flows.”
Our participation in the dual eligibles 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.
The CCI, and the dual eligibles demonstration program in particular, is a model of providing health care that is
new to regulatory authorities and health plans in the State of California. Our participation and success in the dual
eligibles demonstration is subject to a number of risks inherent in untested health care initiatives and new populations
with limited cost experience. For example, the CCI requires us to provide benefits with which we had limited operating
experience, including but not limited to LTSS benefits. Our failure to successfully organize and deliver on this model
would negatively affect the operating and financial success of this business opportunity.
Some of the risks involved in the CCI and our participation in the dual eligibles demonstration include:
• Dual eligibles are generally among the most chronically ill individuals within each of Medicare and Medi-
Cal, requiring a complex range of services from multiple providers. If we do not accurately predict the
costs of providing benefits to dual eligibles or the rates under our agreement with CMS and DHCS prove to
be inadequate, our participation in the CCI may prove to be unprofitable.
• Our profitability in the CCI will be dependent in part on our ability to successfully provide and administer
LTSS benefits, both directly and through subcontracting arrangements with third parties. Because we have
limited operating experience in providing and administering these benefits, particularly with respect to cost
management, there is no assurance that the arrangements we have made and are continuing to refine will be
on favorable terms or that the information exchange between us and these third parties will allow us to
efficiently manage member care, which may adversely affect our results of operations, particularly as our
Medi-Cal membership increases through, among other things, Medicaid expansion.
• Dual eligibles have the option to opt out of the dual eligibles demonstration while retaining all of their
Medi-Cal benefits under CCI, including LTSS, which may reduce or eliminate the inherent efficiencies of
the dual eligibles demonstration portion of the CCI. In particular, while the provision and administration of
LTSS benefits may increase Medi-Cal costs, successfully managing care for these LTSS recipients may
generate equal or greater Medicare savings in the form of reduced costs for treatment for acute conditions
and/or hospitalizations. In the first year of the CCI, we experienced opt-out rates that were higher than
originally anticipated. If large numbers of dual eligibles continue to opt out of the dual eligibles
demonstration, we may be unable to capitalize on such potential efficiencies in the dual demonstration
portion of the CCI, and, as a result, we may not be able to maximize our investment in the CCI and our
profitability with respect to our participation in the CCI may be lower than originally anticipated.
• In each county, we will be offered as one of the health plans selected to participate in the CCI. Dual
eligibles in each county will be able to select to receive benefits from any of the participating health plans.
As a result of such competitive factors, we may not attract a satisfactory number of dual eligibles.