UnitedHealth faces fines in California investigation

SAN FRANCISCO -- A California investigation into the claims practices of UnitedHealth Group has given fresh ammunition to opponents of UnitedHealth's buyout of local insurer Sierra Health Services, even as Sierra Health executives offered assurances that similar claims issues wouldn't happen here.

UnitedHealth could face fines up to $1.3 billion because its PacifiCare unit allegedly handled claims unfairly after UnitedHealth, the nation's second-largest health insurer, took it over.

Regulators investigated and uncovered at least 130,000 alleged violations of state laws and regulations regarding payments for medical care, California Insurance Commissioner Steve Poizner said in a statement.

A maximum penalty of $10,000 applies to each violation. The violations include wrongful denials of covered claims, incorrect payments, lost documents and delays in handling claims. The maximum fine will apply only if authorities prove all violations and show they were part of a deliberate scheme.

"After years of broken promises to California regulators, it became crystal clear that PacifiCare simply could not or would not fix the meltdown in its claims-paying process," Poizner said.

Doctors' groups say they're worried those claims-processing flaws would infect Sierra Health's operations if federal antitrust regulators approve UnitedHealth's $2.6 billion buyout of the Las Vegas managed-care insurer.

UnitedHealth's claims-paying track record in other states has been a key reason the American Medical Association, the Nevada State Medical Association and the Clark County Medical Society have opposed the Sierra Health buyout, said Larry Matheis, executive director of the state medical association.

UnitedHealth, which also owns PacifiCare in Nevada, agreed in September to pay 36 states $20 million for claims-processing problems. Nevada's share totaled nearly $40,000. Regulators in Arizona, Nebraska and Texas have also fined UnitedHealth for claims issues.

"The behaviors that have been observed in community after community and state after state are ones that can really affect the health-care system if you get a huge concentration of the market in one company," Matheis said. "What's being proposed by UnitedHealth in acquiring Sierra is such a concentration of power that these kinds of abuses and settlements could affect access to health care."

Sierra Health and UnitedHealth would combine for more than 800,000 enrollees in Nevada, with No. 2 insurer WellPoint serving about 270,000 members in the Silver State.

Peter O'Neill, vice president of investor and public relations for Sierra Health, said consumers needn't be concerned about UnitedHealth's purchase of his company.

That's partly because Nevada Insurance Commissioner Alice Molasky-Arman made consistent claims-processing a condition of her August approval of the buyout, O'Neill said. Molasky-Arman's ruling, the conditions for which last two years after the merger closes, required that the deal not lead to modifications in Sierra Health's existing claims and customer-service operations.

"United continues to make assurances that there will be no wholesale changes to the way we do business here in Nevada," O'Neill said. "One of the attractive elements of this company for United was the fact that our business is run so well, and the fact that we have, for the most part, positive, long-standing relationships with the provider community."

O'Neill also said Sierra Health officials are confident that UnitedHealth is taking steps to address the violations the California Insurance Commission said it found in its investigation.

The Department of Justice is nearing the end of its antitrust review of the UnitedHealth-Sierra Health deal.

The Clark County Commission on Jan. 2 gave county-run University Medical Center permission to sue to block the buyout if administrators feel Sierra Health's sale would hurt the hospital's reimbursements for patient care. Nevada Attorney General Catherine Cortez Masto is also studying the transaction to determine whether it complies with state law and serves the interests of Nevadans.

The problems in California stem from the $9.2 billion purchase of PacifiCare by Minnetonka-based UnitedHealth in January 2006. More than 3 million Californians were added to UnitedHealth in the deal. The company now has about 27 million enrollees nationwide.

UnitedHealth officials said problems occurred when the company tried to make too many changes too quickly.

Cypress-based PacifiCare had already disclosed many of the issues raised by regulators prior to the investigation and was taking "aggressive steps" to make improvements, Mason said.

PacifiCare has already been fined $3.5 million by California's Department of Managed Health Care over the alleged violations.

Department of Insurance investigators reviewed PacifiCare claims processed between July 2005 and May 2007 following complaints from patients and doctors, Poizner said.

UnitedHealth's regional chief executive David Hansen said the "vast majority" of the alleged violations were administrative errors that did not harm PacifiCare members. More than 80,000 of the violations, he said, stemmed from not sending health care providers letters acknowledging that claims were received, even though most of those claims were paid on time, he said.

The Associated Press contributed to this report. Contact reporter Jennifer Robison at jrobison@reviewjournal.com or (702) 380-4512.