FHP to Settle Claims It Overcharged Government

FHP International Corp. said it agreed to pay $12 million to settle Justice Department claims that it overcharged the government for health benefits for federal employees.

The Fountain Valley-based health maintenance organization said the payments cover a five-year period through 1991, but it added that it can’t yet predict whether it might have to make additional payments for contracts in other years.

The government claimed that FHP charged federal agencies higher premiums than the company charged other customers, a violation of its contract. In May, the company set up a $45- million reserve to cover possible claims stemming from government audits of its contracts.

In announcing the settlement Monday, Westcott W. Price III, the company’s chief executive, said it admitted no wrongdoing but “concluded that a quick and amicable settlement of the matter for an amount that was well below the initial claim by the government would be in the best interests” of shareholders.

Justice Department officials couldn’t be reached for comment.

Separately, FHP’s rival, PacifiCare Health Systems Inc. of Cypress, is moving to settle a similar government dispute. In July, PacifiCare said it overcharged for health benefits for federal workers over the last six years and put $25 million into a reserve account to handle potential claims. PacifiCare is planning to acquire FHP early next year.

A PacifiCare spokeswoman said Monday that the company charged some customers less than federal agencies from 1990 to 1993 and has agreed to reimburse the government for the difference. She said the health maintenance company has not had to pay any fines or penalties.

The actions by both companies reflect the Clinton administration’s increasing scrutiny of health plans nationwide that provide benefits for 10 million government workers in jobs ranging from postal workers to congressional staff.

FHP said its agreement with the government releases it from claims that it overcharged for federal employees in California, Arizona, New Mexico and Utah in the 1987-91 period. However, government auditors have yet to say whether FHP might have to pay additional claims for that period, including those for health-care plans it later acquired in Nevada, Texas, Colorado, Illinois and Ohio.

FHP spokeswoman Ria Carlson attributed the alleged overbilling to differences in calculations by actuaries for the company and the government. The government requires contractors such as FHP and PacifiCare to charge no more than they charge for other comparable health plans in a given geographic area.

“Actuarial science is not black and white,” she said.