Humana 2009 Annual Report Download - page 112

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
No. 3:08-CV-162-JHM-DW, was dismissed with prejudice on June 23, 2009, and no appeal was filed. On
September 21, 2009, the plaintiffs filed in the state court action a consolidated shareholder derivative complaint
(the “Consolidated Derivative Complaint”), which, as noted above, is premised on the same events underlying
the related federal securities class action. The Consolidated Derivative Complaint alleges, among other things,
that some or all of the Derivative Defendants (i) failed to correct Humana’s allegedly inadequate controls relating
to its bids filed with respect to its stand-alone Medicare Part D prescription drug plans (PDPs) for 2008,
(ii) caused Humana to misrepresent its business prospects, (iii) failed to correct Humana’s earnings guidance, and
(iv) caused Humana to charge co-payments for its PDPs that were based on incorrect estimates. The Consolidated
Derivative Complaint asserts claims against the Derivative Defendants for breach of fiduciary duty, corporate
waste, and unjust enrichment. The Consolidated Derivative Complaint also asserts claims against certain
directors and officers of Humana for allegedly breaching their fiduciary duties by engaging in insider sales of
Humana common stock and misappropriating Humana information. The Consolidated Derivative Complaint
seeks the following relief, among other things: (i) damages in favor of Humana; (ii) an order directing Humana to
take actions to reform and improve its internal governance and procedures, including holding shareholder votes
on certain corporate governance policies and resolutions to amend Humana’s Bylaws or Articles of
Incorporation; (iii) restitution and disgorgement of the Derivative Defendants’ alleged profits, benefits, and other
compensation; (iv) an award of plaintiffs’ legal costs and expenses; and (v) other relief that the court deems just
and proper. Neither Humana nor the Derivative Defendants have, as of yet, answered or otherwise responded to
the Consolidated Derivative Complaint.
Provider Litigation
Humana Military Healthcare Services, Inc. (“HMHS”) has been named as a defendant in Sacred Heart
Health System, Inc., et al. v. Humana Military Healthcare Services Inc., Case No. 3:07-cv-00062 MCR/EMT (the
“Sacred Heart” Complaint), a class action lawsuit filed on February 5, 2007 in the U.S. District Court for the
Northern District of Florida asserting contract and fraud claims against HMHS. The Sacred Heart Complaint
alleges, among other things, that, HMHS breached its network agreements with a class of hospitals, including the
seven named plaintiffs, in six states that contracted for reimbursement of outpatient services provided to
beneficiaries of the Department of Defense’s TRICARE health benefits program (“TRICARE”). The Complaint
alleges that HMHS breached its network agreements when it failed to reimburse the hospitals based on
negotiated discounts for non-surgical outpatient services performed on or after October 1, 1999, and instead
reimbursed them based on published CHAMPUS Maximum Allowable Charges (so-called “CMAC rates”).
HMHS denies that it breached the network agreements with the hospitals and asserted a number of defenses to
these claims. The Complaint seeks, among other things, the following relief for the purported class members:
(i) damages as a result of the alleged breach of contract by HMHS, (ii) taxable costs of the litigation,
(iii) attorneys fees, and (iv) any other relief the court deems just and proper. Separate and apart from the class
relief, named plaintiff Sacred Heart Health System Inc. requests damages and other relief the court deems just
and proper for its individual claim against HMHS for fraud in the inducement to contract. On September 25,
2008, the district court certified a class consisting of “all institutional healthcare service providers in TRICARE
former Regions 3 and 4 which had network agreements with [HMHS] to provide outpatient non-surgical services
to CHAMPUS/TRICARE beneficiaries as of November 18, 1999, excluding those network providers who
contractually agreed with [HMHS] to submit any such disputes with [HMHS] to arbitration.” HMHS is
challenging the certification of this class action. On October 9, 2008, HMHS petitioned the U.S. Court of
Appeals for the Eleventh Circuit pursuant to Federal Rule of Civil Procedure 23(f) for permission to appeal on an
interlocutory basis. On November 14, 2008, the Court of Appeals granted HMHS’s petition. On November 21,
2008, the district court stayed proceedings in the case pending the result of the appeal on the class issue or until
further notice. Oral argument before the Court of Appeals was held on January 14, 2010. On March 2, 2009, in a
case styled Southeast Georgia Regional Medical Center, et al. v. HMHS, the named plaintiffs filed an arbitration
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