PacifiCare Says It Charged U.S. Too Much
PacifiCare Health Systems Inc., the giant managed-care company, disclosed Wednesday that it apparently overcharged the government millions of dollars for health services for federal employees.
The Cypress-based firm said it put $25 million into a reserve account to handle potential government claims for the last six years. Its decision mirrors a move in May by its Orange County rival, FHP International Corp., which took a $45-million reserve for possible overbilling on its federal contracts.
Both actions reflect the Clinton administration’s stepped-up scrutiny of many health plans nationwide that together serve 10 million government employees, from postal workers to agency administrators to congressional staff.
PacifiCare executives said the overbilling issue arose internally several months ago but that the company postponed disclosing the matter to investors until it could pin down the impact. Company spokesman David Erickson said that “it’s pretty apparent” that the company overcharged the government.
However, he blamed the overbilling on honest errors. “We didn’t consciously and knowingly go into [government contract] negotiations and charge them too much,” he said.
PacifiCare said it hopes to negotiate a settlement with the federal Office of Personnel Management, which manages the federal health plan.
FHP’s long-standing dispute with the agency was recently handed over to the Justice Department for investigation.
Alan Hoops, PacifiCare’s president and chief executive, attributed the company’s billing discrepancy to its failure to give certain government employees the cheapest premiums available. The government requires PacifiCare and other health plans to make sure rates on federal contracts match the lowest available locally.
Hoops said that although groups of commercial employers in recent years have negotiated lower premiums, those reductions weren’t always matched in federal contracts.
PacifiCare, which serves 65,000 federal employees, will use the $25-million reserve to cover overcharges found by government auditors for services provided from 1990 to 1993 and for billings in 1994 and 1995 that haven’t yet been audited.
“Nobody knows exactly what [our] liability will be, including the feds,” Hoops said.
The $25-million reserve was part of $42 million in special charges that PacifiCare listed Wednesday for its third quarter.
Overall, the company reported earnings fell 72% in the fiscal third quarter to $8.6 million, or 27 cents a share, from $30.2 million, or 97 cents a share, for the same period last year. Revenue rose 22%, to $1.2 billion from $981 million.
