PacifiCare Scrutinized by Regulators in Texas

Managed care giant PacifiCare Health Systems has been placed under administrative oversight by the state of Texas, where regulators say the Santa Ana-based company is not offering patients adequate access to hospitals and doctors, and is late in paying physician claims.

“The areas of specific concern are complaint and appeals procedures; availability, accessibility and continuity of care; duties and supervision of delegated networks, . . . quality improvement and utilization review,” Texas Insurance Commissioner Jose Montemayor wrote to the president of the company’s Texas operations last month.

The action, which requires PacifiCare to submit a plan to remedy the problems by Dec. 22, is the latest in a string of embarrassments for PacifiCare. The company’s stock plummeted in October on news that its president, Robert O’Leary, was leaving after just three months on the job, and its profits have been sharply down thanks to what most observers consider a faulty and outdated business model.

Over the last few days, the company has been hit with two shareholder lawsuits alleging that its executives misled investors into thinking that the giant HMO was in better financial shape than it really was. The company plans to contest the suits.

PacifiCare spokesman Ben Singer said that the company is working with the Texas insurance commissioner to address the issues raised by regulators there.

Already, he said, one of the most egregious, in which patients living in Galveston, a beach community on the Gulf of Mexico, were assigned to doctors in Beaumont, an industrial city 89 miles away.

“There’s an action plan in place,” said Singer, who blamed the company’s problems in the state on the weakened condition of Texas’ physician groups. Like those in California, the groups are failing in large numbers, putting the form of managed care practiced by PacifiCare at particular risk. When PacifiCare purchased one of the largest of those groups, Harris Methodist of Dallas, it inherited many of the group’s problems, including tardiness in paying claims, Singer said.

PacifiCare typically pays physicians set monthly fees for patient care, regardless of the actual costs.

In Nasdaq trading, PacifiCare shares fell 75 cents to close at $12.88. The stock is down 76% so far this year.