UnitedHealth faces stiff fines in California

At the end of 2007, UnitedHealth Group executives vowed to improve their operations and physician relations after saying the company lost 315,000 commercial members, mostly because it mishandled the 2005 acquisition of PacifiCare.

In late January, California insurance regulators offered their own numbers to measure how badly they believed United mishandled the PacifiCare deal.

One number was a fine of $3.5 million by the California Dept. of Managed Health Care, over mishandling claims, the largest penalty that department has ever issued.

Another number -- $1.3 billion -- is the maximum fine the California Dept. of Insurance could levy on the health plan. While analysts consider that amount unlikely, United still could face a hefty fine depending on how many of its apparent violations of state laws and regulations on paying medical claims are deemed "willful." Each "willful" violation is a maximum $10,000 fine, and each not considered intentional is a maximum $5,000.

Even if all are considered non-willful, then United could face as much as a $650 million fine -- about 50 times greater than any penalty the department has ever imposed, and a similar proportion greater than the $12 million paid last October in a 36-state settlement over payment practices.

That's because of one more number: 133,000. That is how many violations the insurance department said it uncovered, representing a period between June 23, 2006 and May 31, 2007. Meanwhile, the managed care department said 30% of the medical claims it reviewed were improperly denied. The insurance department regulates PPOs, while the managed care department regulates HMOs, and they conducted a joint, eight-month investigation into PacifiCare.

In a prepared statement on Jan. 29, insurance commissioner Steve Poizner said, "It is crystal clear that PacifiCare simply cannot or will not fix the meltdown in its claims-paying process. We're going to put an end to that. If PacifiCare can't carry out the ABCs of basic claims payment, today's regulatory action will help spell it out."

United spokesman Tyler Mason said the company had already addressed the problems with the PacifiCare business with a "top-to-bottom" review and action plan.

He said the problems reported by the California agencies in many cases came down to administrative errors, like failing to include a phone number in letters in case the member wanted to appeal the plan's decision. "That being said, we take all these issues very seriously; we self-identified many of them."

Speaking a few days after the regulators announced the fines, Mason said the company hadn't decided whether to pay or appeal the $3.5 million fine levied by the Dept. of Managed Health Care.

As for the potentially larger fine from the Dept. of Insurance, Mason said, "There's a whole administrative process that goes forward with that. We need to see what an administrative judge is going to do with the $5,000 to $10,000 range of these, when the vast majority are technical in nature."

Organized medicine welcomed the fines and called for the state to do more to prevent managed care companies from mishandling their members' health benefits.

"Just because United said they're sorry and will pay fines, it doesn't mean patients are protected and won't continue to suffer," California Medical Assn. President Richard Frankenstein, MD, a pulmonologist from Santa Ana, said in a statement.

At the time the $9.2 billion United-PacifiCare merger was approved by regulators, United executives promised that the deal would not hurt consumers.

That promise was broken, said William G. Plested III, MD, immediate past president of the AMA and a surgeon in Santa Monica, Calif.

"Patients, physicians and employers in California do not appear to be benefiting from this merger of two giant health insurers," Dr. Plested said. "UnitedHealth has posted historically high profits, even during times of economic slowdown. The premiums they charge have soared without an expansion of patient benefits, and physicians have been forced to divert precious time from patient care to dealing with burdensome administrative hassles."

Thousands of problems

The reports put out by the two California regulators allege that PacifiCare "made large-scale and willful decisions to use broken systems to process claims and respond to providers, while continually effectively collecting premiums," a news release from the two departments said.

The regulators released plenty of numbers intended to bear out their allegations.

For example, out of 1,125,707 paid claims the insurance department examined, in 81,286 instances PacifiCare failed to acknowledge a receipt of a claim within 15 business days, in violation of state law.

That meant physicians didn't know whether the plan had received a claims submission, the insurance department said.

In 42,137 instances, the insurance department said, PacifiCare failed to reimburse an uncontested claim within the 30-business-day period required under the state's prompt-payment law.

And 5,432 times, the department said, the plan failed to pay interest on late claims as required.

The insurance department also reported that United/PacifiCare sometimes was unable to supply supporting documents as necessary during the investigation.

For example, out of 10,566 "provider" contracts, the department said, half had no date on them to show when PacifiCare received the contract. In 1,681 cases, the department said, there was no indication of when the "provider" was notified of the status of the contract.

The department said it has recovered about $1 million from PacifiCare that it has passed on to consumers, physicians and others affected by improperly denied claims.

United executives have acknowledged that the PacifiCare merger resulted in problems with customer service and claims payment, although it did not admit to the exact number and nature of violations pointed out by the California regulators.

The company said it has already begun to fix them.