Humana 2003 Annual Report Download - page 60

reduce the number of systems we operate, have upgraded and expanded our information systems capabilities, and
are gradually migrating existing business to fewer systems. If the information we rely upon to run our businesses
was found to be inaccurate or unreliable or if we fail to maintain effectively our information systems and data
integrity, we could have operational disruptions, have problems in determining medical cost estimates and
establishing appropriate pricing, have customer and physician and other health care provider disputes, have
regulatory problems, have increases in operating expenses, lose existing customers, have difficulty in attracting
new customers, or suffer other adverse consequences. Our information systems require an ongoing commitment
of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace
with continuing changes in information processing technology, evolving industry and regulatory standards, and
changing customer preferences.
We depend on independent third parties for significant portions of our systems-related support, equipment,
facilities, and certain data, including data center operations, data network, voice communication services and
pharmacy data processing. This dependence makes our operations vulnerable to such third parties’ failure to
perform adequately under the contract, due to internal or external factors. Due to continued consolidation in the
industry, there are a limited number of service organizations with the size, scale and capabilities to effectively
provide certain of these services, especially with regard to pharmacy benefits processing and management.
However, we believe that other organizations could provide similar services on comparable terms. A change in
service providers, however, could result in a decline in service quality and effectiveness or less favorable contract
terms which could adversely affect our operating results.
We rely on our agreements with customers, confidentiality agreements with employees, and our trade
secrets and copyrights to protect our proprietary rights. These legal protections and precautions may not prevent
misappropriation of our proprietary information. In addition, substantial litigation regarding intellectual property
rights exists in the software industry. We expect software products to be increasingly subject to third-party
infringement claims as the number of products and competitors in this area grows.
There can be no assurance that our process of improving existing systems, developing new systems to
support our operations, integrating new systems, protecting our proprietary information, and improving service
levels will not be delayed or that additional systems issues will not arise in the future. Failure to adequately
protect and maintain the integrity of our information systems and data may result in a material adverse effect on
our financial positions, results of operations and cash flows.
If we fail to manage prescription drug costs successfully, our financial results could suffer.
In general, prescription drug costs have been rising over the past few years. These increases are due to the
introduction of new drugs costing significantly more than existing drugs, direct to consumer advertising by the
pharmaceutical industry that creates consumer demand for particular brand-name drugs, and members seeking
medications to address lifestyle changes. In order to control prescription drug costs, we have implemented multi-
tiered copayment benefit designs for prescription drugs, including our four-tiered copayment benefit design, Rx4
and an Rx allowance program. We are also evaluating other multi-tiered designs. We cannot assure that these
efforts will be successful in controlling costs. Failure to control these costs could have a material adverse effect
on our financial position, results of operations and cash flows.
We are involved in various legal actions, which, if resolved unfavorably to us, could result in substantial
monetary damages.
We are a party to a variety of legal actions that affect our business, including employment and employment
discrimination-related suits, employee benefit claims, breach of contract actions, and tort claims.
We, together with some of our competitors in the health benefits business are defendants in a number of
purported class action lawsuits. These include an action against us and nine of our competitors that purports to
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