United Healthcare 2009 Annual Report Download - page 22

validate the coding practices of and supporting documentation maintained by care providers. These audits
involve a review of medical records maintained by providers, including those in and out of network, and may
result in prospective and retrospective adjustments to payments made to health plans pursuant to CMS Medicare
contracts. Certain of our plans have been selected for audit. The first audits focused on medical records
supporting risk adjustment data for 2006 that were used to determine 2007 payment amounts. The Office of
Inspector General for HHS is conducting an audit of our risk adjustment data for two plans. We are unable to
predict the outcome of the audits. However, any material adjustments could have a material effect on our results
of operations.
Our ability to retain and acquire Medicare, Medicaid and SCHIP enrollees is impacted by bids and plan designs
submitted by our competitors and us. Under the Medicaid Managed Care program, state Medicaid agencies are
periodically required by federal law to seek bids from eligible health plans to continue their participation in the
acute care Medicaid health programs. If we are not successful in obtaining renewals of state Medicaid Managed
Care contracts, we risk losing the members that were enrolled in those Medicaid plans. Under the Medicare Part
D program, to qualify for automatic enrollment of low income members, our bids must result in an enrollee
premium below a threshold, which is set by the government after our bids are submitted. If the enrollee premium
is not below the government threshold, we risk losing the members who were auto-assigned to us and we will not
have additional members auto-assigned to us. For example, we lost approximately 650,000 of our auto-enrolled
low-income subsidy members in 2008 because certain of our bids exceeded thresholds set by the government. In
general, our bids are based upon certain assumptions regarding enrollment, utilization, medical costs, and other
factors. In the event any of these assumptions are materially incorrect or our competitors’ bids and positioning
are different than anticipated, either as a result of unforeseen changes to the Medicare program or otherwise, our
results of operations could be materially affected.
If we fail to develop and maintain satisfactory relationships with physicians, hospitals, and other health
care providers, our business could be adversely affected.
We contract with physicians, hospitals, pharmaceutical benefit service providers, pharmaceutical manufacturers,
and other health care providers for competitive prices and services. Our results of operations and prospects are
substantially dependent on our continued ability to maintain these competitive prices and services. Failure to
develop and maintain satisfactory relationships with health care providers, whether in-network or out-of-network,
could adversely affect our business and results of operations.
In any particular market, physicians and health care providers could refuse to contract, demand higher payments,
or take other actions that could result in higher medical costs, less desirable products for customers or difficulty
meeting regulatory or accreditation requirements. In some markets, certain health care providers, particularly
hospitals, physician/hospital organizations or multi-specialty physician groups, may have significant market
positions or near monopolies that could result in diminished bargaining power on our part. In addition, physician
or practice management companies, which aggregate physician practices for administrative efficiency and
marketing leverage, may compete directly with us. If these providers refuse to contract with us, use their market
position to negotiate favorable contracts or place us at a competitive disadvantage, our ability to market products
or to be profitable in those areas could be adversely affected.
In addition, we have capitation arrangements with some physicians, hospitals and other health care providers.
Under the typical arrangement, the health care provider receives a fixed percentage of premium to cover all or a
defined portion of the medical costs provided to the capitated member. Under some capitated arrangements, the
provider may also receive additional compensation from risk sharing and other incentive arrangements.
Capitation arrangements limit our exposure to the risk of increasing medical costs, but expose us to risk related to
the adequacy of the financial and medical care resources of the professional. To the extent that a capitated health
care provider organization faces financial difficulties or otherwise is unable to perform its obligations under the
capitation arrangement, we may be held responsible for unpaid health care claims that should have been the
responsibility of the capitated health care provider and for which we have already paid the provider under the
capitation arrangement. Further, payment or other disputes between a primary care provider and specialists with
20