Humana 2005 Annual Report Download - page 30

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 or other legal problems, have increases in operating expenses, lose existing customers, have difficulty
in attracting new customers, or suffer other adverse consequences.
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. We have recently changed vendors in
our pharmacy benefits program. A change in service providers 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.
Our business plans also include becoming a quality e-business organization by enhancing interactions with
customers, brokers, agents, and other stakeholders through web-enabling technology. Our strategy includes sales
and distribution of health benefit products through the Internet, and implementation of advanced self-service
capabilities, for internal and external stakeholders.
There can be no assurance that our process of improving existing systems, developing new systems to
support our expanding 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.
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.
In addition, because of the nature of the health care business, we are subject to a variety of legal actions
relating to our business operations, including the design, management and offering of products and services.
These include and could include in the future:
• claims relating to the methodologies for calculating premiums;
• claims relating to the denial of health care benefit payments;
• claims relating to the denial or rescission of insurance coverage;
• challenges to the use of some software products used in administering claims;
• medical malpractice actions based on our medical necessity decisions or brought against us on the
theory that we are liable for our providers’ alleged malpractice;
• allegations of anti-competitive and unfair business activities;
• provider disputes over compensation and termination of provider contracts;
• disputes related to ASO business, including actions alleging claim administration errors;
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