Health Net 2015 Annual Report Download - page 42

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• 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 CCI may prove to be unprofitable.
• Our profitability in 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 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. Larger than expected numbers of dual eligibles have opted out of, and continue to
dis-enroll from, the demonstration, which has impacted and continues to impact our expected total
enrollment for the demonstration. We have worked with DHCS and others to implement outreach and other
programs designed to increase our Cal MediConnect enrollment, but if enrollment continues below
expectations over the course of the demonstration, our overall profitability with respect to our participation
in CCI may be lower than originally anticipated.
• We are required to make required filings with, and obtain approvals from, regulatory authorities in order to
meet the ongoing demands of CCI. There can be no assurance that we will obtain these approvals on
satisfactory terms, or at all.
• We are subject to various other risks and uncertainties associated with participating in government
programs such as Medicare and Medi-Cal. For example, the agreement we have with DHCS and CMS
governing the dual eligibles demonstration may be terminated by DHCS and CMS without cause upon 180
days prior notice. Furthermore, CCI itself is subject to changing legislation and regulations as well as state
budgetary concerns. For example, the California Director of Finance is required to annually evaluate CCI’s
cost effectiveness and report to the state legislature. If the legislature determines that CCI is not cost
effective, the program may be suspended. Furthermore, potential cost savings that were expected to
improve the cost effectiveness of the program may be limited due to certain modifications imposed after
CCI became effective. These changes include the exemption of more than 100,000 potential beneficiaries
from the dual eligibles demonstration based on their enrollment in Medicare D-SNP programs, their age or
health condition, the transfer of significant savings initially allocated under the program from the state to
the federal government, and the federal direction to suspend a tax that the state had used to fund the
program implementation. The state has indicated that CCI will run at least through calendar year 2017. In
2016, the state will work to (1) implement a new managed care tax, and (2) increase participation in the
program. If these are not achieved by January 2017, the state has indicated that CCI would end as of
January 2018. See “—Medicare programs represent a significant portion of our business and are subject to
risk”, “—Government programs represent an increasing share of our revenues. If we are unable to
effectively administer these programs or if we do not effectively adapt to changes to these programs, we
may experience a significant reduction in revenues from these government programs, which could have a
material adverse effect on our business, financial condition or results of operations” 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”.
Accordingly, there can be no assurance that the business opportunity presented by CCI, including the dual
eligibles demonstration, will prove to be successful. Our failure to successfully adapt to the requirements of CCI, the
inability of the program to generate the necessary cost savings for the state or the termination or suspension of the
program by the state could have an adverse effect on our business, financial condition and results of operation, as well
as the trading price of our common stock.