California Regulators Issue $3.5M Fine Against UnitedHealth Subsidiary For Alleged Claims Processing Violations

Main Category: Health Insurance / Medical Insurance
Article Date: 31 Jan 2008 - 10:00 PDT

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California health insurance regulators on Tuesday issued a $3.5 million fine against PacifiCare, a subsidiary of UnitedHealth Group, the Sacramento Bee reports (Chan, Sacramento Bee, 1/30).

The state Department of Managed Health Care issued the fine after a joint investigation with the state Department of Insurance found PacifiCare from July 1, 2005, through May 31, 2007, had more than 130,000 alleged claims processing violations. State regulators said that PacifiCare improperly denied 30% of claims reviewed during the investigation. In addition, they said that PacifiCare often delayed reimbursements to physicians and hospitals for more than 30 days (Darce, San Diego Union-Tribune, 1/30).

According to the San Francisco Chronicle, complaints against PacifiCare increased significantly in early 2006, when UnitedHealth acquired the company (Colliver, San Francisco Chronicle, 1/29). The $9.2 billion acquisition increased UnitedHealth membership by about three million to 27 million. David Hansen, regional chief executive for UnitedHealth, on Monday in a meeting with the Los Angeles Times said that the company should have made fewer changes to PacifiCare at the time of the acquisition (Girion, Los Angeles Times, 1/29).

PacifiCare spokesperson Tyler Mason said that the company has taken "aggressive steps" to address the problems cited by state regulators. He added that PacifiCare has added 50 full-time employees to address claims processing issues. PacifiCare officials have not decided whether the company will pay the $3.5 million fine or pursue an appeal, Mason said (Feder Ostrov, San Jose Mercury News, 1/30).

State Might Issue $1.3B in Additional Fines
California Insurance Commissioner Steve Poizner on Tuesday said that the state insurance department might issue additional fines against PacifiCare for the alleged claims processing violations (Girion, Los Angeles Times, 1/30). Poizner said that fines for each alleged violation would range from $5,000 to $10,000.

According to the Wall Street Journal, additional fines could "theoretically add up to between $650 million and $1.3 billion," but "several analysts said additional fines would likely be far lower given the amounts traditionally levied in California" (Fuhrmans, Wall Street Journal, 1/30). The state will issue the maximum fine only in the event that "authorities prove all the violations and show they were committed as part of a deliberate scheme," the AP/Contra Costa Times reports (Wohlsen, AP/Contra Costa Times, 1/29).

More Audits
Poizner on Tuesday also said that the California insurance department will begin audits of the eight largest health insurers in the state to address alleged claims processing violations similar to those found at PacifiCare, the Union-Tribune reports (San Diego Union-Tribune, 1/30). The eight health insurers include Aetna, Blue Shield of California, Cigna, HealthNet and WellPoint, among others (Sacramento Bee, 1/30). Representatives from WellPoint, which operates Blue Cross of California, and Blue Shield declined to comment on the audits (Los Angeles Times, 1/30).

Poizner said, "The actions today get at the very core of how our health care system operates. When a consumer gets sick, they expect their health insurance company to be there for them to pay legitimate claims to doctors and hospitals." He added, "I want to send a clear message to every health insurance company in California that I won't tolerate any company deploying a shoddy claims filing system" (San Diego Union-Tribune, 1/30).

Comments
Poizner in a statement said, "After years of broken promises to Californians, it is crystal clear that PacifiCare simply cannot or will not fix the meltdown in its claims paying processes," adding, "If PacifiCare can't carry out the ABCs of basic claims payment, today's regulatory action will help spell it out" (May Yee, Minneapolis Star Tribune, 1/29). "We have already taken and continue to take aggressive steps to address the issues raised by the departments and to improve our operational performance in California," Hansen said (Wall Street Journal, 1/30).

Cindy Ehnes, director of the state DMHC, said, "When a California consumer buys health insurance, they're paying a lot of money every month for nothing but a promise. That promise is to allow them access to the care they need and pay for care," adding, "When a health plan isn't keeping that promise, that is a fundamental violation" (San Francisco Chronicle, 1/29).

State Assembly Bill
Meanwhile, the California Assembly on Tuesday unanimously voted to pass a bill (AB 1150) that would increase regulation of health insurers in the state. Under the legislation, sponsored by state Assembly member Ted Lieu (D-Torrance), health insurers could not link policy cancellations with bonus payments to employees.

The bill, which moves to the state Senate for consideration, is "part of continuing scrutiny by legislators and state regulators over the way insurance companies handle policy cancellations -- often after patients run up major bills," according to the Times. Health insurers have said that they use policy cancellations to remove members who misrepresent their health status on applications (Los Angeles Times, 1/30).

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