Humana 2010 Annual Report Download - page 124

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. In addition, we have
responded and are continuing to respond to requests for information regarding certain provider-payment practices
from various states’ attorneys general and departments of insurance.
On September 10, 2009, the Office of Inspector General, or OIG, of the United States Department of Health
and Human Services issued subpoenas to us and our subsidiary, Humana Pharmacy, Inc., seeking documents
related to our Medicare Part D prescription plans and the operation of RightSourceRxSM, our mail order
pharmacy in Phoenix, Arizona. The government has informed us that no additional materials will be sought
pursuant to the subpoenas.
We also are involved in various other 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, general contractual matters, intellectual property matters, and
challenges to subrogation practices. We also are subject to claims relating to performance of contractual
obligations to providers, members, and others, including failure to properly pay claims, improper policy
terminations, challenges to our implementation of the new Medicare prescription drug program and other
litigation.
Personal injury claims and claims for extracontractual damages arising from medical benefit denials are
covered by insurance from our wholly owned captive insurance subsidiary and excess carriers, except to the
extent that claimants seek punitive damages, which may not be covered by insurance in certain states in which
insurance coverage for punitive damages is not permitted. In addition, insurance coverage for all or certain forms
of liability has become increasingly costly and may become unavailable or prohibitively expensive in the future.
The outcome of any current or future litigation or governmental or internal investigations, including the
matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other
sanctions that may be imposed at the discretion of federal or state regulatory authorities. Nevertheless, it is
reasonably possible that the outcome of these matters may have a material adverse effect on our results of
operations, financial position, and cash flows. Certain of these matters could also affect our reputation.
17. SEGMENT INFORMATION
We manage our business with two segments: Government and Commercial. The Government segment
consists of beneficiaries of government benefit programs, and includes three lines of business: Medicare,
Military, and Medicaid. The Commercial segment consists of members enrolled in our medical and specialty
products marketed to employer groups and individuals. When identifying our segments, we aggregated products
with similar economic characteristics. These characteristics include the nature of customer groups as well as
pricing, benefits, and underwriting requirements. These segment groupings are consistent with information used
by our Chief Executive Officer.
The accounting policies of each segment are the same and are described in Note 2. The results of each
segment are measured by income before income taxes. We allocate all selling, general and administrative
expenses, investment and other revenue, interest expense, and goodwill, but no other assets or liabilities, to our
segments. Members served by our two segments often utilize the same provider networks, in some instances
enabling us to obtain more favorable contract terms with providers. Our segments also share indirect overhead
costs and assets. As a result, the profitability of each segment is interdependent.
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