Health Net 2015 Annual Report Download - page 44

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condition. See “—Medicare programs represent a significant portion of our business and are subject to risk” for
additional information about our Medicare programs and the associated risks.
On February 4, 2015, we received a notice from the Arizona Health Care Cost Containment System
(“AHCCCS”), Division of Health Care Management (“DHCM”) that stated that we were in violation of its contract for
Acute Care Medicaid services in Maricopa County. These violations for failure to meet contractual requirements
included, among other things, deficiencies related to staffing and support services, website accessibility, provider
credentialing, claims processing and grievance and appeals. As a result, DHCM imposed a monetary sanction of
$200,000 to be withheld from our future capitation payments, and imposed a cap on auto assignment effective February
13, 2015 until further notice. DHCM also required us to submit corrective action plans as specified in the notice, and
stated that any failure to correct the deficiencies outlined in the notice could result in additional compliance actions,
including additional sanctions up to non-renewal of the one-year option to extend our Arizona Medicaid contract or
termination of the contract in whole or in part. If we were to be subject to additional sanctions or if our contract with
AHCCCS was terminated or not renewed, this could have an adverse impact on our Medicaid business, our reputation,
results of operations, cash flows or financial condition.
We contract with independent third party vendors and service providers who provide services to us and our
subsidiaries or to whom we delegate selected functions. Violations of, or noncompliance with, laws and/or regulations
governing our business by such third parties, or governing our dealings with such parties, could, among other things,
subject us to additional audits, reviews and investigations and adverse effects from such audits, reviews and
investigations. In addition, from time to time, government agencies investigate whether our operations are being
conducted in accordance with regulations applicable to government contractors, including but not limited to regular
audits to enforce mandatory pricing arrangements. Government investigations of us, whether relating to government
contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including
repayments, fines and/or penalties being imposed upon us, or could lead to suspension or debarment from government
programs or future government contracting, which could have a material adverse effect on our financial condition,
results of operations and cash flows. See “—We are subject to risks associated with outsourcing services and functions
to third parties” for additional detail regarding risks associated with our relationships with third parties.
We face risks related to litigation, which, if resolved unfavorably, could result in substantial penalties and/or
monetary damages, including punitive damages. In addition, we may incur material expenses in the defense of
litigation and our financial condition, results of operations, cash flow and/or liquidity could be adversely affected if
litigation expenses are greater than we project.
We have been in the past, are currently, or may become in the future, subject to a variety of legal actions,
including but not limited to litigation related to the Merger, claims related to the insurance industry in general and our
business in particular, such as claims by members alleging failure to pay for or provide health care, poor outcomes for
care delivered or arranged, improper rescission, termination or non-renewal of coverage, insufficient payments for out-
of-network services, claims related to the payment of taxes, including but not limited to claims that may have
retroactive application, and claims for failure to maintain adequate provider directories. These legal actions also include
claims brought against companies in general, including, but not limited to employment and employment discrimination-
related suits, employee benefit claims, wage and hour claims, including, without limitation, cases involving allegations
of misclassification of employees and/or failure to pay for off-the-clock work, breach of contract actions, tort claims,
fraud and misrepresentation claims, shareholder suits, including, without limitation, suits alleging securities fraud,
intellectual property and real estate related disputes, and claims arising from or in connection with acquisitions,
divestitures and other significant transactions, including but not limited to actions to block or unwind such transactions.
In addition, we incur and likely will continue to incur potential liability for claims by employer groups for return of
premiums; claims by providers, including claims for withheld or otherwise insufficient compensation or reimbursement,
claims related to self-funded business and claims related to reinsurance matters; and claims alleging information
security incidents and breaches. In our role as a federal and state government contractor, we are, and may be in the
future, subject to qui tam litigation brought by individuals who seek to sue on behalf of the government for violations
of, among other things, state and federal false claims laws. The legal actions to which we are currently and in the future
could be subject can also include allegations of fraud, misrepresentation, breach of fiduciary duty, unfair or improper
business practices and violations of state or federal antitrust laws and can include claims for punitive damages and
various forms of injunctive relief, among other things. Also, there are currently, and may be in the future, attempts to
bring class action lawsuits against various managed care organizations, including us. In some of the cases pending
against us, substantial non-economic or punitive damages are also being sought.
We cannot predict the outcome of any lawsuit with certainty, and we have in the past and continue to incur