Court rules against UnitedHealth Group on California fines

A California appeals court has ruled in favor of state regulators in their attempt to impose fines on a subsidiary of Minnetonka-based UnitedHealth Group related to more than 900,000 alleged violations of a California law on insurance claims.

Dave Jones, the insurance commissioner in California, issued a statement Friday saying the court ruling this week paves the way for another court to affirm some $91 million in fines against PacifiCare, an insurance company that UnitedHealth Group acquired more than a decade ago. The deal substantially expanded the company's UnitedHealthcare health insurance business, which is now the nation's largest carrier.

But UnitedHealth Group on Friday said it would ask the California Supreme Court to review the matter and reinstate a lower court's decision in favor of the health insurer.

"UnitedHealthcare purchased PacifiCare and imposed cost-cutting measures that destroyed PacifiCare's claims-handling processes," Jones said in a statement. He added: "By any measure, 908,000 violations reflect a general business practice of violating consumer protection laws."

In a statement, UnitedHealth Group said: "This decision is in conflict with statutory and California Supreme Court precedent. If it were to stand, the ruling would harm efforts to keep escalating health care costs in check."

UnitedHealth Group acquired PacifiCare for $9.2 billion in a 2005 deal that was one of the biggest health plan mergers at the time. Two years later, UnitedHealth Group officials acknowledged in a rare public confession that the company had forced new technology and business practices too quickly in new markets such as California, resulting in "physician resentment, network disruptions and operational overload."

United pledged to pay claims faster and repair relationships with doctors, and the California Medical Association told the Star Tribune in 2010 that PacifiCare seemed to have cleaned up its problems.

Even so, the California Department of Insurance in 2008 filed an enforcement action against PacifiCare, alleging the insurer engaged in multiple unfair claims settlement practices and other violations of the insurance code. Following a hearing, the insurance commissioner found PacifiCare engaged in over 900,000 acts and practices in violation of the code, and ultimately imposed more than $173 million in penalties.

The penalty was imposed in June 2014, UnitedHealth Group said in a subsequent regulatory filing that also cited an administrative law judge recommendation for a fine of $11.5 million in the case. United filed a lawsuit in July 2014 in the Superior Court of Orange County challenging the commissioner's decision, and the court split the case into two phases.

The ruling this week from the California Court of Appeal involves only the first phase of the legal challenge, which involves $91 million of the overall penalty.

"In the second phase the superior court also reversed $82 million in penalties on other grounds," the California Department of Insurance said in a Friday news release. "An appeal of that decision is pending in the court of appeal, to follow the decision just released."

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck