Health Net 2015 Annual Report Download - page 50

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of the member's plan or as otherwise required by law. The amount of provider reimbursement that a plan is obligated to
pay in certain cases is established by a standard set forth in the plan that is not clearly translated into dollar terms, such
as “maximum allowable amount” or “usual, customary and reasonable.” However, in other instances such
reimbursement requirements are defined by statute or regulation and such amounts may, in certain instances, be greater
than those calculated according to the plan standards. These statutory requirements related to provider reimbursements
may increase our health care costs, which may adversely affect our business, financial condition or results of operations.
In addition, providers who render out-of-network services may believe they are underpaid for their services and may
either litigate or arbitrate their dispute with the plan or balance bill our member. Regulatory authorities in various states
may also challenge the manner in which we reimburse members for services performed by non-contracted providers. As
a result of litigation or regulatory activity, we may have to pay providers additional amounts or reimburse members for
their out-of-pocket payments. The uncertainty about our financial obligations for such services and the possibility of
subsequent adjustment of our original payments could have an adverse effect on our financial condition or results of
operations.
Physicians and other professional providers, provider groups and hospitals that contract with us have in certain
situations commenced litigation and/or arbitration proceedings against us to recover amounts for which they allege we
are liable, including amounts related to unpaid claims and amounts they allege to be underpayments due to them under
their contracts with us. We are currently a party to matters of this nature and could face additional claims or be subject
to litigation and/or arbitration proceedings in the future in connection with similar matters. We believe that provider
groups and hospitals have become increasingly sophisticated in their review of claim payments and contractual terms in
an effort to maximize their payments from us and have increased their use of outside professionals, including
accounting firms and attorneys, in these efforts. These efforts and the litigation and arbitration that result from them
could have an adverse effect on our results of operations and financial condition.
Adverse general economic conditions could adversely affect our revenues and results of operations.
Adverse general economic conditions could expose us to a number of risks, including risks associated with the
potential financial instability of our customers. In light of the uncertainty surrounding the ultimate impact of the ACA
and related state health care reform proposals, how the implementation of these requirements will affect these risks
remains unclear. If our customer base experiences cash flow problems or other financial difficulties, it could, in turn,
adversely impact membership in our plans. For example, our customers could modify, delay or cancel plans to purchase
our products, or may make changes in the mix of products purchased from us. If our customers experience financial
issues, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. Further, our
customers or potential customers may force us to compete more vigorously on factors such as price and service to retain
or obtain their business, and in order to compete effectively in our markets, we also must deliver products and services
that demonstrate value to our customers and that are designed and priced properly and competitively. A significant
decline in membership in our plans and the inability of current and/or potential customers to pay their premiums as a
result of unfavorable economic conditions, particularly our individual customers on the exchanges, could have a
material adverse effect on our business, including our revenues, profitability and cash flow. In addition, a prolonged
economic downturn could negatively impact the financial position of hospitals and other providers and, as a result,
could adversely affect our contracted rates with such parties and increase our medical costs.
Challenging economic conditions may also impact state and federal budgets. For example, budgetary pressures
associated with an economic downturn could lead to reduced or delayed reimbursements or payments in our federal and
state government-funded health care coverage programs, including Medicare and Medi-Cal, or could lead to
reimbursements or payments in these programs that do not keep pace with our cost trends. These risks are exacerbated
by our increasing share of revenues associated with government programs, as further described above in the risk factor
under the heading, “—Government programs represent an increasing share of our revenues. If we are unable to
effectively administer these programs, if we do not effectively adapt to changes to these programs, or if we experience a
significant reduction in revenues from these government programs, it could have a material adverse effect on our
business, financial condition or results of operations.” State and federal budgetary pressures could also cause new or
higher levels of assessments or taxes for our commercial programs, such as surcharges on select fee-for-service and
capitated medical claims or premium taxes on insurance companies and HMOs, and could adversely affect our results
of operations.
If we fail to effectively maintain our information management systems, it could adversely affect our business.
Our business depends significantly on effective and efficient information systems. The information gathered and
processed by our information management systems assists us in, among other things, pricing our services, monitoring