Health Net Reports Settlement in MDL Physician Class Action Litigation

May 3, 2005

Health Net Inc. announced Tuesday it has reached a settlement with approximately 900,000 physicians across the nation, thus ending various class action lawsuits brought by physicians, the first of which was filed in September 1999.

The settlement, the third among the managed care companies involved in this Multi District Litigation (MDL), includes Health Net’s commitment to institute a number of business practice changes that will reportedly benefit physicians and strengthen Health Net’s physician relationships.

“This will allow us to continue to enhance our working relationship with the physicians who serve our members. It will put a potentially contentious matter behind us. As part of the settlement, Health Net has already begun to implement a number of new business practices that will improve health plan/physician relationships and contribute to improvements in our operations,” said Jay Gellert, president and chief executive officer of Health Net.

“This is the right thing for our members, our physician partners, our company and our stockholders,” Gellert added.

“Over the past year, Health Net has taken many steps to improve provider relationships. This settlement is just the latest manifestation of its commitment to be a reliable and trustworthy partner with our physician members,” said Jack Lewin, M.D., executive director of the California Medical Association. “In so doing, Health Net is helping California physicians to focus more of their resources on patient care.”

The settlement will be presented for court approval in the Southern District of Florida located in Miami on May 6, 2005. This court has jurisdiction over the MDL lawsuits. Final approval is expected to take five to six months.

Health Net estimates that the direct and indirect costs to implement the business practice changes will be more than $80 million over the four-year term of the commitments in the settlement agreement. In addition, the settlement includes a payment of $40 million to general settlement funds and an expected award of up to $20 million for plaintiffs’ legal fees.

Health Net will record an approximately $66 million pretax charge against earnings in the first quarter of 2005 to account for the settlement amounts, its legal expenses and other costs related to the MDL litigation in Miami.

Among the business practices changes Health Net has agreed to implement are:

— Enhanced disclosure of certain claims payment practices;

— Conform claims-editing software to certain editing and payment rules and standards;

— Payment of electronically submitted claims in 15 days and 30 days for paper claims;

— Use a uniform definition of medical necessity that includes reference to generally accepted standards of medical practice and credible scientific evidence published in peer-reviewed medical literature;

— Establish a Billing Dispute External Review Board to afford prompt, independent resolution of billing disputes;

— Provide 90-day notice of changes in practices and policies and implement various changes to standard form contracts;

— Establish an independent Physician Advisory Committee;

— Where physicians are paid on a “capitation” basis, provide projected cost and utilization information, provide periodic reporting, and not delay assignment to the capitated physician; and

— Other changes.

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