Humana 2007 Annual Report Download - page 100

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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
request for proposal, or RFP, for the TRICARE contracts. As required under the contract, the target underwritten
health care cost and underwriting fee amounts for the fourth option period were negotiated. Any variance from
the target health care cost is shared with the federal government. Accordingly, events and circumstances not
contemplated in the negotiated target health care cost amount could have a material adverse effect on our
business. These changes may include, for example, an increase or reduction in the number of persons enrolled or
eligible to enroll due to the federal government’s decision to increase or decrease U.S. military deployments. In
the event government reimbursements were to decline from projected amounts, our failure to reduce the health
care costs associated with these programs could have a material adverse effect on our business.
In October 2007, we were awarded the Department of Veterans Affairs first specialty network
demonstration project, known as Project HERO (Healthcare Effectiveness through Resource Optimization), to
support healthcare delivery to veterans. The contract is comprised of one base period and four one-year option
periods subject to annual renewals at the federal government’s option, with services beginning January 1, 2008.
Our Medicaid business, which accounted for approximately 2% of our total premiums and ASO fees for the
year ended December 31, 2007, consisted of contracts in Puerto Rico and Florida, with the vast majority in
Puerto Rico. Our Medicaid contracts with the Puerto Rico Health Insurance Administration for the East and
Southeast regions of Puerto Rico are effective from November 1, 2006 through June 30, 2008. In 2007, we also
entered into an ASO contract with the Puerto Rico Health Administration for the Metro North Region which is
effective from November 1, 2006 through October 31, 2009.
The loss of any of the contracts above or significant changes in these programs as a result of legislative
action, including reductions in premium payments to us, or increases in member benefits without corresponding
increases in premium payments to us, may have a material adverse effect on our financial position, results of
operations, and cash flows.
Legal Proceedings
Our current and past business practices are subject to review by various state insurance and health care
regulatory authorities and other state and federal regulatory authorities. These authorities regularly scrutinize the
business practices of health insurance and benefits companies. These reviews focus on numerous facets of our
business, including claims payment practices, competitive practices, commission payments, privacy issues,
utilization management practices, and sales practices. Some of these reviews have historically resulted in fines
imposed on us and some have required changes to some of our practices. We continue to be subject to these
reviews, which could result in additional fines or other sanctions being imposed on us or additional changes in
some of our practices.
On February 13, 2008, New York Attorney General Andrew Cuomo announced he had issued subpoenas to
16 health plans in conjunction with a lawsuit his office is filing against UnitedHealth Group and its subsidiary,
Ingenix, as part of an industry-wide investigation into certain provider-payment practices. We received a
subpoena in connection with this matter and intend to cooperate fully with the investigation. The matters covered
by the subpoena do not involve our Medicare operations in New York or any other state. Our operations in New
York consist primarily of Medicare business.
We also are involved in various lawsuits that arise, for the most part, in the ordinary course of our business
operations, including employment litigation, claims of medical malpractice, bad faith, nonacceptance or
termination of providers, anticompetitive practices, improper rate setting, failure to disclose network discounts
and various other provider arrangements, intellectual property matters, and challenges to subrogation practices.
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