California's seven largest health plans were fined nearly $5 million in total Monday for failing to properly pay medical claims submitted by thousands of doctors and hospitals over the last three years.
Insurance regulators said the companies also would pay "tens of millions of dollars" in restitution to medical providers whose claims were underpaid or incorrectly rejected.
The fines cap an 18-month investigation by the California Department of Managed Health Care into the payment practices of Aetna Inc., Anthem Blue Cross of California, Blue Shield of California, Cigna Corp., Health Net Inc., Kaiser Foundation Health Plan and UnitedHealthcare/PacifiCare.
"California's hospitals and physicians must be paid fairly and on time," Cindy Ehnes, the state department's director, told a Los Angeles news conference. "The incorrect payment of provider claims by plans unfortunately is a persistent issue."
Hospitals said Monday's action would send a loud message across California's multibillion-dollar insurance industry.
"In levying these fines, [the state] is addressing an ongoing, systemic issue that harms the ability of providers to care for their patients," said Jan Emerson-Shea, a spokeswoman for the California Hospital Assn.
But doctors blasted the fines, saying they were a "slap on the wrist." James Hinsdale, president of the California Medical Assn., called the penalties "chump change … for highly profitable health plans that systematically deny legitimate claims and routinely block, delay or limit physician reimbursements as one tactic to boost their bottom lines."
The state agency reviewed samples of claims after providers who serve members of health maintenance organizations complained about problems. Auditors said none of the plans met a state legal requirement to pay 95% of their claims correctly. More than 21 million Californians have HMO coverage.
The reviews also found that most of the health plans lacked adequate procedures for settling disputes with providers. In some cases, health plan workers responsible for processing claims also oversaw appeals.
The trade group for health plans said the companies would work with state regulators to improve their performance. But the California Assn. of Health Plans also seized on a piece of positive news from regulators: The fined firms generally met state requirements for paying claims on time.
"We have long recognized that the administrative side of healthcare coverage can take valuable time away from patient care, which is why plans have been working to streamline processes both at the health plan level and in doctors' offices," said Patrick Johnston, the association's president.
Only two health plans commented on the state's action.
Kaiser spokesman Won Ha said the plan, which is based in Oakland, had taken steps to improve its processing of claims in a "timely and accurate manner," although he did not provide details.
"We continue to build on our progress to meet the high standards of the Department of Managed Health Care and other regulators," Ha said. "We are committed to achieving or exceeding all regulatory and customer requirements."
Connecticut-based Aetna acknowledged problems with its payment procedures and said it took immediate action once regulators informed the company of its findings. Aetna pointed out that its penalty — $300,000 — was the lowest of those imposed on the seven health plans.
"Aetna takes our responsibilities to our members and providers very seriously, but we do sometimes make mistakes," spokeswoman Anjanette Coplin said.
Anthem Blue Cross, a unit of Indianapolis-based WellPoint Inc., and Blue Shield of California received the largest fines — $900,000 each. UnitedHealthcare/PacifiCare was penalized $800,000. Health Net and Kaiser were fined $750,000 each, and Cigna was assessed $450,000.
State regulators said the size of the fines was determined by the volume of each plan's business in California and the severity of its violations.
The health plans also must compensate providers for money they are owed, including penalties and interest, within six months. The plans must reopen their records dating back two to three years to their last financial review by the state.
Hospitals are likely to receive the largest share of the money because they submit bigger bills than doctors.
The restitution is the latest good news for some hospitals. Last month, regulators from the managed care department said that seven facilities would divvy up $1.62 million from Anthem Blue Cross to resolve unrelated allegations that the health plan improperly reimbursed the providers for patient costs that exceeded daily hospital rates. Anthem admitted no wrongdoing in the case.