United Healthcare 2003 Annual Report Download - page 39

UnitedHealth Group 37
Contingent Liabilities
Because of the nature of our businesses, we are routinely involved in various disputes, legal proceedings
and governmental audits and investigations. We record liabilities for our estimates of the probable costs
resulting from these matters. Our estimates are developed in consultation with outside legal counsel
and are based upon an analysis of potential results, assuming a combination of litigation and settlement
strategies and considering our insurance coverages, if any, for such matters. We do not believe any
matters currently threatened or pending will have a material adverse effect on our consolidated
financial position or results of operations. It is possible, however, that future results of operations for
any particular quarterly or annual period could be materially affected by changes in our estimates or
assumptions.
INFLATION
The current national health care cost inflation rate significantly exceeds the general inflation rate.
We use various strategies to lessen the effects of health care cost inflation. These include setting
commercial premiums based on anticipated health care costs and coordinating care with physicians
and other health care providers. Through contracts with physicians and other health care providers,
we emphasize preventive health care, appropriate use of health care services consistent with clinical
performance standards, education and closing gaps in care.
We believe our strategies to mitigate the impact of health care cost inflation on our operating results
have been and will continue to be successful. However, other factors including competitive pressures,
new health care and pharmaceutical product introductions, demands from physicians and other health
care providers and consumers, major epidemics, and applicable regulations may affect our ability to
control the impact of health care cost inflation. Because of the narrow operating margins of our risk-
based products, changes in medical cost trends that were not anticipated in establishing premium rates
can create significant changes in our financial results.
LEGAL MATTERS
Because of the nature of our businesses, we are routinely party to a variety of legal actions related to the
design, management and offerings of our services. We record liabilities for our estimates of probable
costs resulting from these matters. These matters include, but are not limited to: claims relating to
health care benefits coverage; medical malpractice actions; contract disputes; and claims related to
disclosure of certain business practices. Following the events of September 11, 2001, the cost of business
insurance coverage increased significantly. As a result, we have increased the amount of risk that we self-
insure, particularly with respect to matters incidental to our business.
Beginning in 1999, a series of class action lawsuits were filed against us and virtually all major
entities in the health benefits business. Generally, the health care provider plaintiffs allege violations of
the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Racketeer
Influenced Corrupt Organization Act (RICO), as well as several state law claims. The suit seeks
injunctive, compensatory and equitable relief as well as restitution, costs, fees and interest payments.
We are engaged in discovery in this matter. A trial date has been set for September 13, 2004.
In March 2000, the American Medical Association filed a lawsuit against the company in connection
with the calculation of reasonable and customary reimbursement rates for non-network providers. The
suit seeks declaratory, injunctive and compensatory relief as well as costs, fees and interest payments.
An amended complaint was filed on August 25, 2000, which alleged two classes of plaintiffs, an ERISA
class and a non-ERISA class. After the court dismissed certain ERISA claims and the claims brought
by the American Medical Association, a third amended complaint was filed. On October 25, 2002,
the court granted in part and denied in part our motion to dismiss the third amended complaint.
We are engaged in discovery in this matter.