Growing pains for UnitedHealth Group

Organized medicine already has offered its reasons why health plan consolidation is troubling for patients and physicians. In late January, California regulators added 133,000 more reasons to the list.

That is the number of violations of state laws and regulations the California Dept. of Insurance says it discovered in just a one-year period investigating the aftereffects of UnitedHealth Group's $9.2 billion purchase of PacifiCare Health Systems. With more than 1.1 million claims examined, that averages out to one reimbursement and claims handling violation for every nine claims. On top of that, the California Dept. of Managed Care, which regulates HMO operations only, found that in the same 2006-07 period, United-PacifiCare mishandled 30% of claims.

Those numbers paint a stark picture of a plan that grew too big and with too little accountability to the patients and physicians who, in the wake of the merger and the market clout it created, had less choice whether to put up with such shoddy service. (Interestingly, as the California regulators point out, one area in which United skipped the growing pains was in its collection of premiums).

The United-PacifiCare example is a warning to regulators about the dangers of health plan mergers -- some 400 in the past decade, many plagued by their own problems -- and it should make them take a long, hard look before considering approval of any such deal.

The case also shows that regulators need to take the strongest action possible to make plans accountable for their misdeeds. History has shown that colossal health plans don't appear to worry much about the occasional fines that pale in comparison to their profits -- it's merely the cost of doing business.

The California situation may mark a striking departure from that pattern. The state could, assuming all violations are found to meet the more serious standard of "willful," to fine United $1.3 billion. That's 100 times more than the national record of $12.6 million it set in December 2007 in fining Blue Shield of California for improper cancellation of individual policies, a penalty the plan is fighting. So far, the California Dept. of Managed Care has issued a $3.5 million fine to United over just the HMO claims.

Whether or not United will ever be forced to pay up big remains to be seen -- many analysts have their doubts. United is mum on whether it will appeal the managed care department's fine, or what course it will take once the state's insurance department issues its specific penalty.

But United has acknowledged its problems with integrating PacifiCare and says it is working to fix them, all while dismissing most of the alleged violations as minor technical matters. Those who might not agree on that last point: Physicians not paid as quickly as California requires (or not told in a timely manner that their claims were even received) or patients hampered in appealing a claim.

Meanwhile, state and federal regulators have a timely opening to apply the lessons of California elsewhere.

Organized medicine -- including the American Medical Association and the Nevada State Medical Assn. -- has gained allies among some of Nevada's top elected officials, including its governor, to have the state reconsider its 2007 approval of United's proposed $2.6 billion merger with Sierra Health Services. That deal would give the company a virtual lock on the HMO market in that state.

Long before the California fines came to light, the AMA and the NSMA testified to state and federal regulators against the merger. In light of United's problems in California, each organization stressed again that allowing an insurer to gain such market domination isn't in the best interest of Nevada's patients and physicians.

As AMNews prepared to go to press, the Nevada attorney general was threatening to sue to stop the deal. Time was running out on the state insurance department's approval, because United and Sierra failed to get all necessary clearances, including a green light from the Dept. of Justice, to close the merger by Feb. 29.

California's experience should cause those officials concern, not only about the scope of United's claims problems there -- still being worked out, United says -- but also of the broader issue of accountability when a health plan gets too big.