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February 24, 2008

Growing pains for UnitedHealth Group

Organized medicine already has offered its reasons why health plan consolidation is troubling for patients and physicians. In late January, California regulators added 133,000 more reasons to the list.

That is the number of violations of state laws and regulations the California Dept. of Insurance says it discovered in just a one-year period investigating the aftereffects of UnitedHealth Group's $9.2 billion purchase of PacifiCare Health Systems. With more than 1.1 million claims examined, that averages out to one reimbursement and claims handling violation for every nine claims. On top of that, the California Dept. of Managed Care, which regulates HMO operations only, found that in the same 2006-07 period, United-PacifiCare mishandled 30% of claims.

Those numbers paint a stark picture of a plan that grew too big and with too little accountability to the patients and physicians who, in the wake of the merger and the market clout it created, had less choice whether to put up with such shoddy service. (Interestingly, as the California insurance regulators point out, one area in which United skipped the growing pains was in its collection of premiums).

The United-PacifiCare example is a warning to regulators about the dangers of health plan mergers -- some 400 in the past decade, many plagued by their own problems -- and it should make them take a long, hard look before considering approval of any such deal.

The case also shows that regulators need to take the strongest action possible to make plans accountable for their misdeeds. History has shown that colossal health plans don't appear to worry much about the occasional fines that pale in comparison to their profits -- it's merely the cost of doing business.

The California situation may mark a striking departure from that pattern. The state could, assuming all violations are found to meet the more serious standard of "willful," to fine United $1.3 billion. That's 100 times more than the national record of $12.6 million it set in December 2007 in fining Blue Shield of California for improper cancellation of individual policies, a penalty the plan is fighting. So far, the California Dept. of Managed Care has issued a $3.5 million fine to United over just the HMO claims.

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Posted by healthinsurance at February 24, 2008 07:07 PM