As one chapter of controversy closes for UnitedHealth Group, the
US’s second-largest health insurer, another chapter opens, so it
seems. And the latest chapter could prove to be UnitedHealth’s most
costly yet as it faces down the California Department of Insurance
(CDI) and the California Department of Managed Health Care (DMHC)
and a potential fine of up to $1.3 billion.
Collaborating for the first time, the CDI and the DMHC have
brought a joint action against UnitedHealth in response to consumer
and provider complaints alleging handling violations by its
PacifiCare unit it acquired in July 2005 for $8.1 billion. The CDI
regulates provider preferred organisations, in essence alliances
between healthcare providers and insurers. The DMHC regulates
health-maintenance organisations that provide plans that all
companies with more than 25 employees are obliged to offer.
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In a joint statement, the CDI and the DMHC cite alleged violations
by PacifiCare that include:
wrongful denials of covered claims;
- incorrect payment of claims;
- lost documents including certificates of creditable coverage
and medical records; - failure to timely acknowledge receipt of claims;
- multiple requests for documentation that was previously
provided; - failure to address all issues and respond timely to member
appeals and provider disputes; and - failure to manage provider network contracts and resolve
provider disputes.
In addition, the CDI alleges that market conduct examinations it
conducted revealed that PacifiCare “made large-scale and wilful
decisions to use broken systems to process claims and respond to
providers, while continually and effectively collecting premiums”.
According to the CDI, it discovered PacifiCare’s alleged unlawful
conduct in 2007 while investigating consumer complaints and then
confirmed PacifiCare’s failure to fix its systems during a targeted
market conduct examination that revealed the full extent of alleged
misconduct.
CDI’s market conduct examinations, which reviewed PacifiCare files
processed between 1 July 2005 and 31 May 2007, identified 130,000
violations of law by PacifiCare in its claims handling practices
and handling of provider data including tracking of provider
disputes and maintaining network lists.
Statutory penalties are onerous and provide for a fine of up to
$5,000 for each non-wilful violation of law and up to $10,000 for
each wilful violation of law. The enforcement action CDI
Commissioner Steve Poizner has brought against PacifiCare
potentially involves a total fine of up to $650 million if all
violations are proved and shown to be non-wilful and up to $1.3
billion if all violations are proved and shown to be wilful. As a
result of the CDI’s investigation, more than $1 million has so far
been recovered for California consumers and health providers
affected by PacifiCare’s alleged violations.
Similar payment violations have been established by the DMHC and a
penalty of $3.5 million has been assessed, the largest fine imposed
by the DMHC. The DMHC fine differs from the CDI amount because it
is calculated based on a set of standards laid down by law.
Commenting on the joint action, 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.” To this end, the
DMHC has set out steps to be taken to correct the claims payment
problems, including an independent monitor to oversee changes and
additional staff to handle the workload.
Customer losses
Customer service problems appear to have more than financial
consequences for the health insurer. Notably, in their joint
statement the CDI and DMHC noted: “Only a few days ago, the company
[UnitedHealth] admitted that it expects to lose at least 400,000
customers nationally due to poor customer service.”
The PacifiCare debacle comes little more than a year after
UnitedHealth laid a share option scandal to rest. The scandal was
the subject of an investigation by legal firm WilmerHale that
revealed the probable backdating of option grants as a result of
inadequate controls from board to accounting levels between 1994
and 2005.
