Health Net 2014 Annual Report Download - page 75

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efforts, $5.0 million related to the early termination of a medical management contract and $1.3 million in litigation-
related expenses net of an insurance reimbursement.
Days Claims Payable
Days claims payable ("DCP") for the year ended December 31, 2014 was 61.2 days compared with 40.4 days for
the year ended December 31, 2013. Adjusted DCP, which we calculate in accordance with the paragraph below, for the
year ended December 31, 2014 was 77.2 days compared with 58.7 days for the year ended December 31, 2013. The
year over year increase was primarily due to the impact of the reinsurance recoverable that reduced commercial health
plan services costs, as well as higher reserves that resulted from our significant enrollment growth during 2014.
Set forth below is a reconciliation of adjusted DCP, a non-GAAP financial measure, to the comparable GAAP
financial measure, DCP. DCP is calculated by dividing the amount of reserve for claims and other settlements ("Claims
Reserve") by health plan services cost ("Health Plan Costs") during the year and multiplying that amount by the number
of days in the year. In this Annual Report on Form 10-K, the following table presents an adjusted DCP metric that
subtracts capitation, provider and other claim settlements and Medicare Advantage Prescription Drug ("MAPD")
payables/costs from the Claims Reserve and Health Plan Costs. Management believes that adjusted DCP provides
useful information to investors because the adjusted DCP calculation excludes from both Claims Reserve and Health
Plan Costs amounts related to health care costs for which no or minimal reserves are maintained. Therefore,
management believes that adjusted DCP may present a more accurate reflection of DCP than does GAAP DCP, which
includes such amounts. This non-GAAP financial information should be considered in addition to, not as a substitute
for, financial information prepared in accordance with GAAP. You are encouraged to evaluate these adjustments and the
reasons we consider them appropriate for supplemental analysis. In evaluating the adjusted amounts, you should be
aware that we have incurred expenses that are the same as or similar to some of the adjustments in the current
presentation and we may incur them again in the future. Our presentation of the adjusted amounts should not be
construed as an inference that our future results will be unaffected by unusual or nonrecurring items.
Year Ended December 31,
2014 2013
(Dollars in millions)
Reconciliation of Adjusted Days Claims Payable:
(1) Reserve for Claims and Other Settlements—GAAP ................................................... $ 1,896.0 $ 984.1
Less: Capitation, Provider and Other Claim Settlements and MAPD Payables ......... (467.2)(93.9)
(2) Reserve for Claims and Other Settlements—Adjusted................................................ $ 1,428.8 $ 890.2
(3) Health Plan Services Cost—GAAP............................................................................. $ 11,307.8 $ 8,886.5
Less: Capitation, Provider and Other Claim Settlements and MAPD Costs............... (4,553.7)(3,348.9)
(4) Health Plan Services Cost—Adjusted.......................................................................... $ 6,754.1 $ 5,537.6
(5) Number of Days in Period ............................................................................................ 365 365
(1) / (3) * (5) Days Claims Payable—GAAP (using end of period reserve amount)......... 61.2 40.4
(2) / (4) * (5) Days Claims Payable—Adjusted (using end of period reserve amount) ..... 77.2 58.7