State to probe insurer denials

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California Atty. Gen. Jerry Brown is joining state regulators in scrutinizing how HMOs review and pay insurance claims submitted by doctors, hospitals and other medical providers.

His announcement came Thursday as regulators said they had stepped up scrutiny of the payment practices of the state’s seven largest health plans in response to complaints from physicians and hospitals.

The increased attention also comes on the heels of a first-of-its-kind report issued this week that said the California health insurers reject 1 in 5 medical claims.


Six of the state’s largest insurers rejected 45.7 million claims for medical care, or 22% of all claims, from 2002 to June 30, 2009, according to the California Nurses Assn.’s analysis of data submitted to regulators by the companies.

The rejection rates ranged from a high of 39.6% for PacifiCare to 6.5% for Aetna for the first half of 2009. Cigna denied 33%, and Health Net 30%.

Anthem Blue Cross, the state’s largest for-profit health plan, and Kaiser, the state’s largest nonprofit plan, each rejected 28% of claims.

Blue Shield, a nonprofit with 3.4 million California members, is the only large health plan that does not report claims-denial figures in its annual report to the state Department of Managed Health Care.

State health plans say claims often are denied because they are duplicates, because patients are no longer members, and because a particular treatment is not a covered benefit.

An industry representative also cautioned that claim rejections do not always equate to actual denials of treatment to patients, and claims may be denied for a number of legitimate reasons.


As for Brown’s investigation, “We believe that the attorney general’s office will learn that the California Nurses Assn.’s mischaracterization of health plan claims data does not accurately reflect denials of care for consumers or widespread denials of insurance coverage,” said Nicole Kasabian Evans, spokeswoman for the California Assn. of Health Plans. “It appears that a good deal of the so-called denials are merely paperwork issues,” she said.

Brown’s office said that his deputies would soon review records and complaints.

“These high denial rates suggest a system that is dysfunctional, and the public is entitled to know whether wrongful business practices are involved,” Brown said.

Doctors complain that too often insurers delay, shortchange or deny legitimate claims.

“Getting health insurers to pay their fair share of medical claims can be as much of a headache for physicians as it is for patients,” said Rebecca Patchin, an anesthesiologist at Loma Linda University and board chairwoman of the American Medical Assn. She said each insurer has a different set of “obscure, bureaucratic rules for processing and paying medical claims” that result in as much as $210 billion of “unnecessary cost” annually, studies have shown.

Don DeMoro of the nurses association said he was told a couple of years ago that denial data weren’t collected. Recently, however, researchers stumbled across them in a section of the annual reports that insurers file with the Department of Managed Health Care.

Harvey Rosenfield, founder of Consumer Watchdog, a Santa Monica-based advocacy group, criticized the department for failing to publicize the information.

“There is no more important information to the consumer than whether they can rely on their health insurance company or HMO to give them the treatment they need,” Rosenfield said.


The department pointed out that the annual reports are posted on the Web. It also said that most denied claims don’t involve patients.

“It’s important to point out that a denied claim means that the patient received the medically necessary services, but the doctor or hospital was not paid for that care,” said Lynne Randolph, spokeswoman for the Department of Managed Health Care. “The department has been very active in ensuring that providers of care should be paid fairly and on time.”

Randolph said the department’s provider complaint unit has obtained almost $20 million in disputed claims payments for physicians since 2005.

PacifiCare, the Cypress-based subsidiary of UnitedHealthcare Group, ranked highest in the state for claims denied in the first half of 2009. It has been the subject of considerable scrutiny for its claims-handling practices.

The HMO paid $3.5 million in fines last year for claims payment problems, and the department is conducting a follow-up examination.

“We still do get frequent complaints about PacifiCare, and obviously the numbers in the California Nurses Assn. report backed that up,” Randolph said. “We do expect we will be taking some further action.”


PacifiCare also faces a hearing this year over state Department of Insurance allegations of 133,000 violations of claims-handling laws that could result in as much as $1.33 billion in fines.

PacifiCare said it has been cooperating with both inquiries and had already corrected most of the identified problems, which it described as technical. The insurer said its claims-denial rate was higher than average because of its unique business model.

“It doesn’t truly reflect an impact on the consumer,” said PacifiCare spokesman Tyler Mason.

PacifiCare said it delegates the financial responsibility for many of its members’ care to physician groups. As a result, many of the denials involve confusion over whether the HMO or the physician groups are responsible for paying certain types of claims. But, the HMO said, consumer bills usually get paid.

Similarly, Woodland Hills-based Health Net said many of its denials were ultimately covered by physician groups that care for patients in exchange for set monthly fees from the insurer.

Cigna spokesman Chris Curran said that, nationwide, the Philadelphia-based insurer approves “more than 99% of eligible claims for care that the doctor recommends.”


A spokesman for Oakland-based Kaiser Permanente said the reported denials were not a reflection of the vast majority of care provided within the HMO’s network.

Blue Shield defended its failure to break out claims denials in its annual report.

“We’ve reported the data this way for years, and the [Department of Managed Health Care] has never asked for any additional information,” said spokesman Aron Ezra. “We’re more than happy to break out the information differently if the [department] requests it from us.”

A spokeswoman said the department has requested the information, which it expects the Chicago insurer to provide.




Rejecting medical claims

California’s top health plans reject an average of 1 in 5 claims for treatment -- 45.7 million claims over the last seven years. Here’s how their rejection rates compared during the first six months of 2009:

PacifiCare: 39.6%

Cigna: 33%

Health Net: 30%

Anthem Blue Cross: 28%

Kaiser Permanente: 28%

Aetna: 6.5%

Blue Shield: Data not available

Source: California Nurses Assn.