PacifiCare Faces Texas Suit
PacifiCare Health Systems Inc.’s turnaround efforts were dealt a setback Monday when the state of Texas announced a lawsuit against one of the company’s subsidiaries for failing to pay medical care providers that recently went bankrupt.
Texas Atty. Gen. John Cornyn charged that three physicians groups in San Antonio, Dallas and Fort Worth became insolvent, in part, because of PacifiCare of Texas’ failure to pay for legitimate medical claims and because of its failure to monitor the financial health of those providers.
“When doctors and hospitals don’t get paid as they should--or when they should--and as a result terminate their relationship with a health plan, patients suffer the consequences,” said Cornyn. “This problem particularly affects those chronically and acutely ill patients whose long-term relationship with their doctor is crucial to their health.”
PacifiCare responded by saying that the lawsuit had no merit, noting that it had “already advanced cash payments on behalf of members to contracted medical groups to cover the medical services provided on behalf of its members.”
Shares of the Santa Ana-based parent company, one of the nation’s largest managed-care companies and the biggest operator of Medicare health plans, dropped $2.26, or 11%, to close at $18.98 in Nasdaq trading. The shares have dropped 46% over the last year. The suit comes on the heels of an announcement in January that the company was reducing its work force by 15%, or 3,000 jobs. PacifiCare has an earnings announcement set for Wednesday.
The lawsuit follows months of contentious negotiations between PacifiCare of Texas and the state. The company was put under state Department of Insurance oversight when it did not resolve the payments issue, but it was released from oversight last April. In October, the company filed its own lawsuit against the state, challenging its right to investigate whether the company had violated state laws.
Greg Crawford, an analyst with Fox Pitt Kelton, said that the case illustrates the precarious situation faced by HMOs that are trying to adapt to a system in which they no longer control costs through fixed payments. Many HMOs now are being forced into more of a shared risk model in which doctors and hospitals are paid more for the care they provide.
“When those providers go bankrupt, there are lots of responsibilities that get transferred back to the health plan, like claims adjudication, and the health plan may not be prepared for that,” Crawford said.
The Texas action is also an example of how states have beefed up their once toothless “prompt pay” laws demanding that health-maintenance organizations pay doctors and hospitals for medical claims on a timely basis. In Georgia, for example, the state’s insurance commissioner recently fined Humana Health Care of Georgia Inc. $400,000 for violating that state’s prompt-pay law.
