California regulators are seeking fines of up to $9.9 billion from health
insurer PacifiCare over allegations that it repeatedly mismanaged medical
claims, lost thousands of patient documents, failed to pay doctors what
they were owed and ignored calls to fix the problems.
In court filings and other documents, the California Department of Insurance
says PacifiCare violated state law nearly 1 million times from 2006 to
2008 after it was purchased by UnitedHealth Group Inc., the nation's
largest health insurance company by revenue.
Regulators said the companies broke promises to maintain smooth operations
for 130,000 of PacifiCare's customers, resulting in what insurance
officials nationwide believe is the largest fine ever sought against a
U.S. health insurer.
"This is about intentional disregard for the interests of doctors,
hospitals and patients in California, and the pursuit of cutting costs
at any means possible," said Adam Cole, the insurance department's
general counsel. "It's a story of intense corporate greed."
PacifiCare and UnitedHealth Group have rejected the state's assertions,
and they are fighting the proposed fines in a lengthy legal hearing that
began 10 months ago in Oakland and could conclude as early as next month.
The insurers maintain that the state's case largely involves administrative
errors that did little harm to anyone. They point out that three-quarters
of the allegations relate to PacifiCare's alleged failure during a
short period in 2007 to inform doctors and patients in correspondence
of their right to appeal coverage decisions.
"The allegations concerning claims processing by PacifiCare are simply
not true," spokeswoman Cheryl Randolph said. "By all objective
measures, PacifiCare pays its claims timely and accurately."
Based in Cypress, PacifiCare has more than 1 million customers in California.
Most of its policyholders have HMO coverage. At issue in this case are
members who get their care through preferred provider organizations, which
reimburse doctors and hospitals for services and require patients to pay
a share of the cost.
The state's accusations are spelled out in documents filed with a state
administrative law judge who has been hearing testimony intermittently
since last December. At the conclusion of the Oakland hearing, the judge
will decide whether to recommend penalties.
California's elected insurance commissioner ultimately will decide
whether to accept the judge's recommendations, revise them or reject
them. That decision can be appealed to the California Superior Court.
The potential penalties are so large because the state is seeking fines
as high as $10,000 for each of the 992,936 violations it is alleging,
for a maximum $9.92 billion.
The National Assn. of Insurance Commissioners said the total potential
fines appeared to be the biggest of their kind.
The association's former president, New Hampshire Insurance Commissioner
Roger A. Sevigny, said it did not keep historical records of such actions,
but "a penalty this size would likely be among the largest, if not
the largest fine, ever required of a U.S. insurance company by a state
Those involved in the case said they expected the total fine — if
there is one — to be far less than the maximum allowed. UnitedHealth
Group said it would appeal any penalties that significantly exceed those
levied in the past for similar violations.
At the heart of the case is the $9.2-billion deal that put PacifiCare under
the wing of UnitedHealth Group, an insurance behemoth based near Minneapolis
that now has 25 million policyholders in 50 states and had $81 billion
in revenue last year.
When executives sought California's approval for the acquisition in
2005, they assured then-Insurance Commissioner John Garamendi that they
would maintain PacifiCare's workforce, organization and relationships
"It makes sense to keep strong operations in California," UnitedHealthcare's
former chief executive, Robert Sheehy, told Garamendi at a hearing that
year. "I don't believe you can manage California business outside
But complaints emerged soon after the deal closed. Doctors said PacifiCare
failed to acknowledge their claims or to enter correct payment contract
rates into its computer system, resulting in lower reimbursements. Providers
also said the insurer mixed up which physicians belonged to its medical network.
Policyholders, meanwhile, inundated the Department of Insurance with complaints
about PacifiCare losing their records, some of which were shipped to India,
where they were miscoded and could not be retrieved. Many customers said
the insurer denied claims for covered procedures and then ignored requests for help.