Humana 2002 Annual Report Download - page 19

and enforce laws and rules. Changes in applicable laws and regulations are continually being considered, and the
interpretation of existing laws and rules also may change periodically. These regulatory revisions could affect our
operations and financial results. Also, it may become increasingly difficult to control medical costs if federal and
state bodies continue to consider and enact significant and sometimes onerous managed care laws and
regulations.
Enforcement of health care fraud and abuse laws has become a top priority for the nation’s law enforcement
entities. The funding of such law enforcement efforts has increased dramatically in the past few years and is
expected to continue. The focus of these efforts has been directed at participants in federal government health
care programs such as Medicare+Choice, Medicaid and the Federal Employee Health Benefits Program, or
FEHBP. We participate extensively in these programs and have continued our stringent regulatory compliance
efforts for these programs. The programs are subject to very technical rules. When combined with law
enforcement intolerance for any level of noncompliance, these rules mean that compliance efforts in this area
continue to be challenging.
We are subject to various governmental audits, investigations and enforcement actions. These include
possible government actions relating to the Employee Retirement Income Security Act, as amended, or ERISA,
FEHBP, federal and state fraud and abuse laws, and other laws relating to Medicare+Choice, including adjusted
community rating development, special payment status, and various other areas. Adjusted community rating
development is the government-defined rating formula used to justify the Medicare+Choice benefits we offer
individuals eligible for Medicare benefits based on a particular community and certain other factors. Special
payment status refers to, among others, Medicare+Choice members who are institutionalized, Medicaid-eligible,
or members who have contracted end-stage renal disease. The Medicare+Choice plan receives a higher payment
for members who qualify for one or more of these statuses. We are currently involved in various government
investigations, audits and reviews, some of which are under ERISA, and the authority of state departments of
insurance. On May 31, 2000, we entered into a five-year Corporate Integrity Agreement with the Office of the
Inspector General for the Department of Health and Human Services as part of a settlement of a Medicare
overpayment issue arising from an audit by the Office of the Inspector General. Although any of the pending
government actions could result in assessment of damages, civil or criminal fines or penalties, or other sanctions
against us, including exclusion from participation in government programs, we do not believe the results of any
of these actions, individually or in the aggregate, will have a material adverse effect on our financial position,
results of operations or cash flows.
Of our seven licensed and active HMO subsidiaries as of March 1, 2003, five are qualified under the Federal
Health Maintenance Organization Act of 1973, as amended. To obtain federal qualification, an HMO must meet
certain requirements, including conformance with benefit, rating and financial reporting standards. In certain
markets, and for certain products, we operate HMOs that are not federally qualified because this provides greater
flexibility with respect to product design and pricing than is possible for federally qualified HMOs.
As of March 1, 2003, Humana Medical Plan, Inc., Humana Health Plan of Texas, Inc., and Humana Health
Plan, Inc. each hold CMS contracts under the Medicare+Choice program to sell Medicare HMO products in a
total of six states. In addition, Humana Insurance Company holds a CMS contract under a Medicare+Choice pilot
program to sell a private fee-for-service product in DuPage County, Illinois and a PPO product in Pinellas
County, Florida.
CMS conducts audits of HMOs qualified under its Medicare+Choice program at least biannually and may
perform other reviews more frequently to determine compliance with federal regulations and contractual
obligations. These audits include review of the HMOs’ administration and management, including management
information and data collection systems, fiscal stability, utilization management and physician incentive
arrangements, health services delivery, quality assurance, marketing, enrollment and disenrollment activity,
claims processing, and complaint systems.
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