Humana 2008 Annual Report Download - page 36

There can be no assurance that we will be able to successfully contain our administrative expenses in line
with our membership and this may result in a material adverse effect on our results of operations, financial
position, and cash flows.
Any failure by us to manage acquisitions, and other significant transactions successfully could have a
material adverse effect on our financial results, business and prospects.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible
investments, acquisitions, strategic alliances, joint ventures, and outsourcing transactions and often enter into
agreements relating to such transactions in order to further our business objectives. In order to pursue this
strategy successfully, we must identify suitable candidates for and successfully complete transactions, some of
which may be large and complex, and manage post-closing issues such as the integration of acquired companies
or employees. Integration and other risks can be more pronounced for larger and more complicated transactions,
or if multiple transactions are pursued simultaneously. In 2008, we acquired UnitedHealth Group’s Las Vegas,
Nevada individual SecureHorizons Medicare Advantage HMO business, OSF Health Plans, Inc., Metcare Health
Plans, Inc., and PHP Companies, Inc. (d/b/a Cariten Healthcare), and in late 2007, we acquired KMG America
Corporation and CompBenefits Corporation. The failure to successfully integrate these entities and businesses
could have a material adverse effect on our results of operations, financial position, and cash flows. If we fail to
identify and complete successfully transactions that further our strategic objectives, we may be required to
expend resources to develop products and technology internally. We may also be at a competitive disadvantage
or we may be adversely affected by negative market perceptions, any of which could have a material adverse
effect on our results of operations, financial position, and cash flows.
If we fail to develop and maintain satisfactory relationships with the providers of care to our members,
our business could be adversely affected.
We contract with physicians, hospitals and other providers to deliver health care to our members. Our
products encourage or require our customers to use these contracted providers. These providers may share
medical cost risk with us or have financial incentives to deliver quality medical services in a cost-effective
manner.
In any particular market, providers could refuse to contract with us, demand to contract with us, demand
higher payments, or take other actions that could result in higher health care costs for us, less desirable products
for customers and members or difficulty meeting regulatory or accreditation requirements. In some markets,
some providers, particularly hospitals, physician specialty groups, physician/hospital organizations or multi-
specialty physician groups, may have significant market positions and negotiating power. 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 some situations, we have contracts with individual or groups of primary care physicians for an actuarially
determined, fixed, per-member-per-month fee under which physicians are paid an amount to provide all required
medical services to our members. This type of contract is referred to as a “capitation” contract. The inability of
providers to properly manage costs under these capitation arrangements can result in the financial instability of
these providers and the termination of their relationship with us. In addition, payment or other disputes between a
primary care provider and specialists with whom the primary care provider contracts can result in a disruption in
the provision of services to our members or a reduction in the services available to our members. The financial
instability or failure of a primary care provider to pay other providers for services rendered could lead those other
providers to demand payment from us even though we have made our regular fixed payments to the primary
provider. There can be no assurance that providers with whom we contract will properly manage the costs of
services, maintain financial solvency or avoid disputes with other providers. Any of these events could have an
adverse effect on the provision of services to our members and our operations.
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