The California Department of Managed Health Care and the California Department of Insurance are filing a joint action against PacifiCare companies owned by UnitedHealth Group after uncovering more than 130,000 alleged claims handling violations in an investigation.
"The most fundamental purpose of insurance is the promise to pay claims fairly and on time and PacifiCare has broken this promise," said Cindy Ehnes, Director of the DMHC. "We're taking strong action today to make sure patients and providers are treated fairly so that they are able to continue to take care of California's healthcare needs."
Ehnes and Insurance Commissioner Steve Poizner are targeting unfair claims handling in the health insurance industry. This is the first action ever taken by both the CDI and the DMHC against a single health plan or insurer.
A joint investigation was launched in 2007 to look into PacifiCare's alleged unfair practices following the receipt of hundreds of consumer and provider complaints about claims payment problems. The company had been acquired by UnitedHealth in 2005.
Violations cited by CDI and MDHC 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.
A previous investigation by the CDI, conducted between July 1, 2005 and May 31, 2007, yielded more than $1 million in recovered claims for California consumers and providers.
According to the CDI, PacifiCare allegedly used inaccurate systems to process claims and respond to providers while continuing to collect premiums. The investigation indicated PacifiCare's alleged decision to improperly handle claims resulted in thousands of infractions and grossly unfair treatment of policyholders and providers.
Each non-willful violation of law is punishable by a fine of up to $5,000, while a willful violation of the law could merit a fine of up to $10,000. Poizner's suit against PacifiCare, if proven on all counts, could cost the company between $650 million and $1.3 billion.
The DMHC has uncovered similar provider claims payment violations and assessed a penalty of $3.5 million, the largest fine imposed by the DMHC. That fine differs from the CDI charge because it is calculated based on a set of standards set by law, rather than a per-violation formula.
The DMHC has also established steps the company must take to correct the problems, including the hiring of an independent monitor to oversee changes and additional staff to handle the workload.
According to MDHC, PacifiCare has admitted that it expects to lose at least 400,000 customers nationally due to poor customer service.
"When they're injured or ill, consumers rely on their insurers to pay legitimate claims," Poizner said. "This promise is essential to our healthcare system, so after years of broken promises to Californians, it is crystal clear that PacifiCare simply can not 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."