Humana 2014 Annual Report Download - page 30

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• claims relating to dispensing of drugs associated with our in-house mail-order pharmacy; and
• professional liability claims arising out of the delivery of healthcare and related services to the public.
In some cases, substantial non-economic or punitive damages as well as treble damages under the federal False
Claims Act, Racketeer Influenced and Corrupt Organizations Act and other statutes may be sought.
While we currently have insurance coverage for some of these potential liabilities, other potential liabilities may
not be covered by insurance, insurers may dispute coverage, or the amount of our insurance may not be enough to cover
the damages awarded. In addition, some types of damages, like punitive damages, may not be covered by insurance.
In some jurisdictions, coverage of punitive damages is prohibited. Insurance coverage for all or some forms of liability
may become unavailable or prohibitively expensive in the future.
The health benefits industry continues to receive significant negative publicity reflecting the public perception of
the industry. This publicity and perception have been accompanied by increased litigation, including some large jury
awards, legislative activity, regulation, and governmental review of industry practices. These factors may materially
adversely affect our ability to market our products or services, may require us to change our products or services or
otherwise change our business practices, may increase the regulatory burdens under which we operate, and may require
us to pay large judgments or fines. Any combination of these factors could further increase our cost of doing business
and adversely affect our results of operations, financial position, and cash flows.
See "Legal Proceedings and Certain Regulatory Matters" in Note 16 to the consolidated financial statements
included in Item 8. - Financial Statements and Supplementary Data. We cannot predict the outcome of these matters
with certainty.
As a government contractor, we are exposed to risks that may materially adversely affect our business or our
willingness or ability to participate in government health care programs.
A significant portion of our revenues relates to federal and state government health care coverage programs,
including the Medicare, military, and Medicaid programs. These programs accounted for approximately 76% of our
total premiums and services revenue for the year ended December 31, 2014. These programs involve various risks, as
described further below.
• At December 31, 2014, under our contracts with CMS we provided health insurance coverage to
approximately 542,400 individual Medicare Advantage members in Florida. These contracts accounted for
approximately 15% of our total premiums and services revenue for the year ended December 31, 2014. The
loss of these and other CMS contracts or significant changes in the Medicare program as a result of legislative
or regulatory 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 results of
operations, financial position, and cash flows.
• At December 31, 2014, our military services business primarily consisted of the TRICARE South Region
contract which covers approximately 3,090,400 beneficiaries. For the year ended December 31, 2014,
premiums and services revenue associated with the TRICARE South Region contract accounted for
approximately 1% of our total premiums and services revenue. On April 1, 2012, we began delivering
services under the current TRICARE South Region contract that the Defense Health Agency, or DHA
(formerly known as the TRICARE Management Activity), awarded to us on February 25, 2011. The current
5-year South Region contract, which expires March 31, 2017, is subject to annual renewals on April 1 of
each year during its term at the government’s option. On January 27, 2015, we received notice from the
DHA of its intent to exercise its option to extend the TRICARE South Region contract through March 31,
2016. The loss of the TRICARE South Region contract, should it occur, may have a material adverse effect
on our results of operations, financial position, and cash flows.
• There is a possibility of temporary or permanent suspension from participating in government health care
programs, including Medicare and Medicaid, if we are convicted of fraud or other criminal conduct in the