"Bungled," Not "Brilliant" Results of UnitedHealth Takeover of Pacificare

We had posted often (see these posts here, here, and here from 2006 with links backward) about the hugely lavish compensation afforded to the Dr William McGuire, former CEO of UnitedHealth Group, one of the largest US insurers/ managed care organizations, and how this remuneration stood in stark contrast to the stated mission of UnitedHealth Group:

UnitedHealth Group is a diversified health and well-being company dedicated to making the health care system work better. The company directs its resources into designing products, providing services and applying technologies that:
- Improve access to health and well-being services;
- Simplify the health care experience;
- Promote quality; and,
- Make health care more affordable.

Most recently, controversy has swirled over the timing of huge stock option grants given to Dr McGuire (see post here), leading to his resignation in October, 2006 (see post here). More recently, McGuire agreed to pay back some of those options, although that would reportedly leave him with more than $800 million worth of options (see post here).

Once again, it seems that in retrospect, Dr McGuire's conduct stood in sharp contrast to the lofty sentiments expressed in UnitedHealth's mission statement. It also stood in stark contrast to the lavish praise once heaped upon him. A 2006 Pulitzer Prize winning article in the Wall Street Journal quoted UnitedHealth director and Dean of the Columbia University School of Nursing Mary Mundinger,

We're so lucky to have Bill. He's brilliant.

This week, there appeared in the press another reminder how brilliant the leadership of UnitedHealth wasn't. Lisa Girion reported in the Los Angeles Times,

California regulators are expected to announce today that they are seeking as much as $1.33 billion in penalties from Cypress-based PacifiCare as a result of widespread problems stemming from its takeover two years ago by healthcare giant UnitedHealth Group Inc.

In an investigation prompted by widespread complaints, the state Department of Insurance uncovered 133,000 alleged violations of state laws and regulations regarding payments for medical care. Each violation carries a maximum penalty of $10,000 for a possible total of $1.33 billion.

Separately, the state Department of Managed Health Care alleged that 30% of the medical claims it reviewed were improperly denied. That agency is seeking an additional $3.5 million in fines.

'These were very serious violations,' said Cindy Ehnes, executive director of the Department of Managed Health Care. 'The most fundamental promise of insurance is that they will pay when you are sick, and they will pay those physicians and hospitals in a fair manner.'

Insurance Commissioner Steve Poizner expressed frustration at efforts to get the company to make changes.

'After years of broken promises to California regulators, it became crystal clear that PacifiCare simply could not or would not fix the meltdown in its claims-paying process,' he said. 'We're going to put an end to that. If PacifiCare can't understand the ABCs of basic claims payment, maybe it will understand the dollars and cents of regulatory action.'

The problems stem from the $9.2-billion purchase of PacifiCare by Minneapolis-based UnitedHealth in January 2006. The deal added more than 3 million Californians to UnitedHealth, which now has about 27 million enrollees nationwide.

The company's regional executives acknowledged that the merger was bungled in many ways. In a meeting with Times reporters and editors Monday, David Hansen, UnitedHealth's regional chief executive, apologized for the problems that the transition caused physicians, hospitals and patients.

Brilliant, eh? In response to this latest debacle, California Insurance Commissioner Steve Poizner said (per another article by Lisa Girion in the LA Times),

Their [the insurance companies' and managed care organizations'] business is to colelct preimiums and pay claims for legitimate healthcare expenses. We're talking about basic issues here. This is fundamental to their business.

So if they do not adequately take care of their members and pay claims fairly, Poizner said he will

come down on them like a ton of bricks

It's nice to see regulators in one state trying to make sure that health care insurers and managed care companies live up to their basic obligations to those from whom they take money. It would be nice to see other state regulators do the same, and then to see state and federal regulators who are supposed to keep the economic playing fields level consider whether other health care organizations are living up to their basic obligations.

Clearly, this story is also a reminder that people would get better, cheaper, more accessible health care if health care organizations were run by leaders who put the health of those they supposedly serve ahead of their urges to become filthy rich. The current perverse incentive structure in the US (and elsewhere), though, seems to reward leaders for something else, like the faux brilliance of the previous UnitedHealth CEO.