Health Net 2015 Annual Report Download - page 215

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-54
our financial condition, results of operations, cash flow or liquidity in such period, and our reputation may be adversely
affected. Management believes that the ultimate outcome of any of the regulatory and legal proceedings that are
currently pending against us should not have a material adverse effect on our financial condition, results of operations,
cash flow and liquidity.
Military and Family Life Counseling Program Putative Class and Collective Actions
We are a defendant in three related litigation matters pending in the United States District Court for the Northern
District of California (the “Northern District of California”) relating to the independent contractor classification of
counselors (“MFLCs”) who contracted with our subsidiary, MHN Government Services, Inc., to provide short-term,
non-medical counseling at U.S. military installations throughout the country under our Military and Family Life
Counseling (formerly Military and Family Life Consultants) program. Plaintiffs in these matters claim that MFLCs
were misclassified as independent contractors under state and federal law, and are seeking unpaid wages, overtime pay,
statutory penalties, attorneys’ fees and interest. Each of these matters is currently stayed pending final resolution by the
U.S. Supreme Court of our motion to compel arbitration. The U.S. Supreme Court granted our writ of certiorari on
September 30, 2015.
On December 29, 2015, we entered into a settlement agreement with all the named plaintiffs in the three related
litigation matters as well as their counsel. Pursuant to the settlement agreement, plaintiffs filed a separate class action in
arbitration that is intended to resolve each of the federal and state law claims asserted in the three related litigation
matters. Under the settlement agreement, we have agreed to a maximum payment amount to settle all the claims
asserted in the three related litigation matters, and would also pay class counsel attorneys’ fees and costs, related payroll
taxes and the costs of settlement administration. The actual amount that we will be required to pay under the settlement
agreement is dependent on the final number of eligible individuals who timely file claims. The claims period closed on
February 25, 2016, and a final approval hearing is scheduled for March 11, 2016. If the arbitrator gives final approval to
the settlement, we will withdraw the appeal pending before the U.S. Supreme Court, and the parties will ask the
Northern District of California to dismiss all three related litigation matters with prejudice. Our obligations under the
settlement agreement are contingent upon the dismissal of all three related litigation matters, and the amounts that we
would be required to pay pursuant to the settlement agreement are not material.
Miscellaneous Proceedings
In connection with the Merger, two purported Company stockholders filed two putative class action lawsuits in
the Court of Chancery of the State of Delaware seeking to enjoin the Merger, and other relief. The lawsuits were
consolidated, and the amended complaint alleged, among other things, that the merger consideration was inadequate,
that the process culminating in the Merger was flawed, that the directors of the Company breached their fiduciary duties
in connection with the Merger, and that Centene, Merger Sub I and Merger Sub II aided and abetted the breaches of
fiduciary duty. The amended complaint also alleged that the Form S-4 Registration Statement filed by Centene on
August 19, 2015 contained material misstatements and omitted material information. Plaintiffs subsequently requested
a voluntary dismissal of the consolidated action, and the dismissal was granted without prejudice on January 25, 2016.
In addition, in the ordinary course of our business operations, we are subject to periodic reviews, investigations
and audits by various federal and state regulatory agencies, including, without limitation, CMS, DMHC, DHCS, the
AHCCCS, the Office of Civil Rights of HHS and state departments of insurance, with respect to our compliance with a
wide variety of rules and regulations applicable to our business, including, without limitation, the Health Insurance
Portability and Accountability Act of 1996, rules relating to pre-authorization penalties, payment of out-of-network
claims, timely review of grievances and appeals, and timely and accurate payment of claims, any one of which may
result in remediation of certain claims, contract termination, the loss of licensure or the right to participate in certain
programs or other sanctions, and the assessment of regulatory fines or penalties, which could be substantial. From time
to time, we receive subpoenas and other requests for information from, and are subject to investigations by, such
regulatory agencies, as well as from state attorneys general. There also continues to be heightened review by regulatory
authorities of, and increased litigation regarding, the health care industry’s business practices, including, without
limitation, information privacy, premium rate increases, utilization management, appeal and grievance processing,
rescission of insurance coverage and claims payment practices.