Health Net 2014 Annual Report Download - page 52

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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. Additionally, in November 2014 we announced that we entered into a master services agreement
with Cognizant for the performance of a significant portion of our information technology activities, which would
significantly increase the scope of services provided to us by third parties in this regard, subject to regulatory approval
of the transaction. 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 currently obtain, and subject to regulatory approval, expect to obtain
in the future, significant portions of our systems-related and other services and facilities, including our data center, from
independent third parties. 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.”
In addition, the Cognizant transaction will require us to devote significant resources to transition from our
existing systems infrastructure and relocate to a new data center, and if we are unable to successfully execute and
manage this transition, the movement of data during the transition may enhance several of the information management
and data security risks we currently face. For additional details on the Cognizant transaction and associated risks, see
the risk factor under the heading “—We are subject to a number of risks in connection with our decision to enter into a
master services agreement with Cognizant for the performance of a significant portion of our business process and
information technology activities.”
We also face challenges with respect to our implementation and support of the requirements of the ACA.
Because federal and state regulators continue to release new and revised final rules and regulations relating to the
implementation of the ACA, there remains substantial uncertainty with respect to these requirements, including, but not
limited to rules and regulations related to the state-based and federally facilitated exchanges, the assessment and
collection of the health insurer fee and the reinsurance, risk adjustment and risk corridors programs. Among other
things, we have been required to define and implement new billing and payment capabilities and support new requests
from third parties and government agencies for data collection and reporting. These additional demands have required
and are continuing to require us to make significant systems changes, including developing, investing in, configuring,
installing and monitoring the performance of new products and technology. The implementation of these changes has
required and will continue to require the expenditure of material resources. See the ACA Risk Factors for further
information regarding the ACA and the challenges we continue to face in implementing its provisions.
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 2015. 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.
As the requirements of supporting our businesses evolve over time, including as a result of the ACA's dynamic
marketplace and in connection with the Cognizant transaction, there can be no assurances that we will be able to make
the necessary systems changes or other modifications necessary to successfully meet such demands. If we do not
successfully respond to such demands in a timely manner, our results of operations, financial condition and cash flows
could be materially adversely affected.