Centene Corporation CNC

From time to time, we are a defendant in lawsuits and regulatory actions and are subject to investigations relating to our business, including, without limitation, medical malpractice claims; claims that may have retroactive application and periodic compliance and other reviews and investigations by members various federal and providers alleging failure state regulatory agencies with respect to timely and accurately pay for or provide healthcare; claims requirements applicable to our business, including, without limitation, those related to non-payment or insufficient payments for out-of-network services; claims related to provider directory accuracy, claims related to network adequacy; claims alleging bad faith; payment of claims, compliance with the CMS Medicare and Marketplace regulations, including risk adjustment adjustment, prior authorizations and broker compensation; claims related to compensation, compliance with the False Claims Act, the calculation of minimum MLR and rebates related thereto; claims thereto, submissions to state agencies related to privacy, intellectual property payments or state false claims acts, pre-authorization penalties, timely review of grievances and vendor disputes; investigations regarding our submission appeals, timely and accurate payment of risk adjuster claims; putative securities class actions; protests and appeals related to Medicaid procurement awards; claims, provider directory accuracy, network adequacy, cybersecurity issues, including those related to our or our third-party vendors' information systems; employment-related disputes, including wage systems, HIPAA and hour claims; submissions to other federal and state agencies fraud, waste and abuse laws; litigation arising out of general business activities, such as tax matters, disputes related to payments healthcare benefits coverage or state false reimbursement, putative securities class actions and related derivative lawsuits, and medical malpractice, privacy, real estate, intellectual property, vendor disputes and employment-related claims; and disputes regarding reinsurance arrangements, claims acts, preauthorization penalties, timely review arising out of grievance the acquisition or divestiture of various assets, class actions and appeals; claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups, vendors and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which we processes claims, claims related to the imposition of new taxes, including but not limited network adequacy and claims alleging that we have engaged in unfair business practices; and protests and appeals related to claims that may have retroactive application. Medicaid procurement awards. Although we maintain some third-party insurance coverage, including excess liability insurance with third-party insurance carriers, certain liabilities or types of damages, such as punitive damages, may not be covered by insurance, insurers may dispute coverage or the amount of insurance may be insufficient to cover the entire damages awarded. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are costly and time-consuming and require significant attention from our management and could therefore have a material adverse effect on our business and financial condition, results of operations or cash flows.

The IRA significantly changes changed Medicare Part D, impacting stand-alone Medicare PDPs as well as the Part D benefit in many of our Medicare Advantage plans beginning in 2025, most notably by eliminating the coverage gap and capping members' annual out-of-pocket cost costs at $2,000 in order to provide more predictable and affordable prescription drug coverage for Medicare beneficiaries. The members' Part D annual out-of-pocket cap for 2026 is $2,100. The IRA changes effective for 2025 result resulted in a meaningful shift in cost-sharing responsibilities between members, drug companies, CMS, Centers for Medicare and Medicaid Services (CMS), and PDPs and will result have resulted in a significant increase in our premiums in consideration for our PDPs PDPs' responsibility for a larger portion of total Part D benefit costs. Starting in 2026, CMS created a Drug Subsidy to compensate plans for the loss of the Manufacturer Discount Program (MDP) for maximum fair price drugs. To help mitigate significant premium impacts and address these changes, CMS introduced the Medicare Part D Premium Stabilization Demonstration program. This program began in calendar year 2025 and was intended by CMS to exist for three years. The parameters of the program are expected to be different each year. For example, in 2025, participating PDPs operated under narrowed risk corridor thresholds as part of the supports CMS introduced to limit market volatility. For 2026, CMS eliminated these narrowed risk corridors entirely, shifting PDPs back toward standard program financial risk‑sharing. We continue to advocate for policies that promote cost-effective, high-quality care for our PDP enrolled members. We have receivables due to us from CMS for Part D risk-sharing programs attributable to the 2025 plan year that we expect to be paid by CMS within a year after the plan year closes. If the payments from CMS are delayed, our cash flows may be materially adversely affected.

In December 2023, 2025, the FASB issued ASU 2023-09 - Income taxes: 2025-11 – Interim Reporting – Narrow-Scope Improvements which clarifies interim disclosure requirements and the applicability of Topic 270. The objective of the standard update is to Income Tax Disclosures which includes provide clarity about current interim requirements. The amendments in this standard update also include a disclosure principle that further enhance income tax disclosures, primarily through standardization and disaggregation requires entities to disclose events since the end of rate reconciliation categories and income taxes paid by jurisdiction. the last annual reporting period that have a material impact on the entity. The new standard is effective for interim periods within annual reporting periods beginning after December 15, 2024. 2027, with early adoption permitted. The Company early adopted is currently evaluating the new guidance in the fourth quarter impact of 2024, as permissible by the ASU. this standard update.

As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. It Except for the matters discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity. However, it is possible that in a particular quarter or annual period the Company's financial condition, results of operations, cash flow, and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings. The Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow, or liquidity.