$3.5 million fine expected for PacifiCare
29 01 08 - 11:12
State regulators Tuesday are expected to announce a $3.5 million fine against PacifiCare for failing to process claims and pay doctors correctly in the aftermath of the health insurer's 2005 purchase by UnitedHealth Group Inc.
The fine marks the largest issued by the California Department of Managed Health Care, which regulates the state's health maintenance organizations.
The Department of Insurance, which also regulates PacifiCare products, will release results of its own investigation that the insurer committed 133,000 incidents of claims processing violations in 2006 and 2007. The company handled 1.1 million claims during that period.
Those allegations must be proved in an administrative hearing, and could result in fines from $650 million to as much as $1.3 billion, according to Insurance Department officials.
"If PacifiCare can't understand the ABCs of basic claims payment, maybe it will understand the dollars and cents of regulatory action," Insurance Commissioner Steve Poizner said in a statement.
Doctors reported PacifiCare was unfairly denying claims, reimbursing claims late, failing to acknowledge receipt of submitted bills and not resolving problems in a timely manner. Patients were sometimes erroneously told their doctors were not in their network or given misinformation about their co-payments and other fees.
Regulators found that the health plan incorrectly denied HMO claims 30 percent of the time and improperly handled disputes over claims 29 percent of the time.
The investigation also found that the company lacked sufficient staff to process claims and efficient procedures to resolve disputes.
The company and regulators agreed to hire an independent claims monitor to make sure claims and disputes are handled properly.
Cindy Ehnes, director of the Department of Managed Health Care, said failing to pay claims properly breaks an insurer's promise to consumers.
"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," she said. "When a health plan isn't keeping that promise, that is a fundamental violation."
Complaints over PacifiCare's billing practices surged in early 2006, shortly after the $7.9 billion purchase of the insurer by UnitedHealth, based in Minnetonka, Minn., went into effect. UnitedHealth continues to use the PacifiCare name to cover more than 1.6 million members in California.
For their part, officials at PacifiCare, which is based in the Los Angeles suburb of Cypress, have admitted that the merger with UnitedHealth, the country's second-largest insurer, proved more difficult than anticipated.
The insurer blamed underestimating the magnitude of integrating the two companies' computer systems for many of the problems, which led to shortchanging doctors and misleading patients about co-payment amounts, and which doctors were in their network. Other problems were blamed on having to create a new physician network.
"We think we have a thorough understanding of what went wrong and have corrected most of it, but some of this requires time to correct," said Nancy Monk, PacifiCare's vice president of regulatory affairs.
But Monk said she does not believe the company's errors will warrant penalties near maximum levels. According to Monk, about 80 percent of the violations found by the Insurance Department were due to failing to acknowledge the receipt of a claim, not a payment dispute.
UnitedHealth has had a tough time since the merger, facing a wave of negative publicity from the involvement of its former chief executive officer, Dr. William McGuire, in a stock options backdating scandal that led to his ouster in late 2006. He has been replaced by Stephen Hemsley.
Last month, McGuire reached a settlement in which he agreed to pay a $7 million fine to the U.S. Securities and Exchange Commission plus reimburse the company $420 million in options and benefits to avoid trial. He has admitted no wrongdoing.
The merger problems have created bad blood with some California doctors and patients.
PacifiCare patients of Dr. Robert Watson III, a pediatrician in Modesto, received letters erroneously telling them the doctor was no longer in their network, said Raeanna Jackson, the doctor's medical biller. Jackson said the problem was resolved after she made numerous phone calls over an eight-month period.
Dr. Ted Mazer, an ear, nose and throat specialist in San Diego, said PacifiCare started reimbursing him at 1993 contract rates after he refused to agree to what he considered "abysmal" new rates offered after the merger. He eventually negotiated more-acceptable rates but said the company seemed unable to keep track of claims information and respond to his complaints. "A frequent comment was, 'We never got your claim, doctor,' " he said.
Dr. Richard Frankenstein, head of the California Medical Association, doesn't buy PacifiCare's excuse that the companies underestimated the challenge of merging.
"UnitedHealth has bought up little and big health plans all over the country," he said. "If they weren't prepared to manage that business from day one, they shouldn't have done it."
E-mail Victoria Colliver at vcolliver@sfchronicle.com.