UnitedHealth billing flaws persisted as company grew

As UnitedHealth Group has grown this decade into a national insurance colossus, the company has repeatedly failed a basic job: paying patients’ medical bills correctly or on time.

Since 2000, the Minnetonka-based company, an insurer of 70 million Americans, has been sanctioned in nine states  for paying claims slowly, shortchanging doctors, hospitals or patients or poorly handling their complaints and appeals, according to a Star Tribune review of regulatory records.

The payment problems related to an array of medical care, from emergency room visits to specialist referrals to oral surgery on children.

After getting faulty information last May from United HealthCare, Mandarin Cheung-Yueh  of Scottsdale, Ariz., spent five months resolving $1,310 in medical bills. “I would have given up if the dollar amount had been smaller,” she said.

UnitedHealth executives told investors last week that it had lost customers and damaged its relationships with physicians because of poor service. They blamed many problems on the company’s rapid growth and said the company will do better.

Yet its chronic difficulties paying medical bills have long frustrated insurance regulators, who enforce laws on how and when claims must be paid. UnitedHealth has paid record penalties for mishandling payments in six states  since 2004, including a $4.4 million fine in Texas last month.

In August, UnitedHealth signed an unprecedented agreement with 37 states to fix the problems over three years.

The foul-ups have happened from New York to Nebraska to California — almost always linked to UnitedHealth computer systems that process medical bills. With a large insurer, even a small error rate frustrates thousands of providers or patients whose appeals can turn into voice-mail and paperwork ordeals.

“What makes me angry is that people don’t fight these things. They think they have to pay,” said Katie Sailors  of Omaha, who complained to state regulators in 2004 after United­Health’s computers incorrectly rejected her son’s surgery-related bill — six times. “You automatically assume the health insurance company is doing right by you.”

Though UnitedHealth, like most insurers, pays the majority of bills correctly, chronic problems on a portion of its claims surfaced in state after state.

“There were times when the fixes would work for a short period of time and then there would be some drift,” said Lou Felice, a deputy chief in the New York Insurance Department. “A particular state would go talk to United, bring them in and settle a problem, but somehow that settlement didn’t get exported and it would crop up someplace else.”

Foul-ups and profits

As regulators uncovered problems with UnitedHealth’s payment practices and customer service, company profits soared to an estimated $4.7 billion this year, up fivefold since 2000.

Top executives were showered with stock options, and longtime leader Dr. William McGuire  became a billionaire on paper. He resigned as chief executive in 2006 after revelations of alleged stock-option backdating. On Thursday he agreed to pay a $7 million fine to the Securities and Exchange Commission and forfeit an additional $420 million in options and benefits. He did not admit wrongdoing and retains options worth an estimated $850 million.

UnitedHealth has acquired 70 companies, more than a third of them health plans, since 2000 and now insures or manages health benefits for 70 million people. Along the way, the company says it invested in the most advanced technology in the industry, part of its declared mission to improve health care.

Its technology hasn’t improved things for Dr. George Schoedinger , an orthopedic surgeon who is part of a specialty clinic in St. Louis. For years, he said, he and the clinic had trouble getting reimbursed by UnitedHealth for patient care. At one point the insurer owed him $600,000. He and the clinic sued United Healthcare of the Midwest in 2004.

U.S. District Judge Stephen Limbaugh  of Missouri, ruling against the insurer in November 2006, declared its claims processing systems “flawed in many ways, denying, reducing, and improperly processing claims on a regular basis. And despite innumerable requests, United was unwilling to remedy the underlying errors in its systems.” 

After the verdict, the payment troubles continued, Schoedinger said. So he filed a second lawsuit against UnitedHealth in May.“These people can never get it right, which says to me that they just plain lie,” he said in an interview.

State insurance departments that have fined UnitedHealth don’t go that far. Even so, Felice, the New York official, said that UnitedHealth and other insurers too often accept penalties as “the cost of doing business.” The company’s systematic problems in many states led to “regulator frustration,” according to a memo from a June meeting of state insurance commissioners.

Mea culpa from an insurance giant

In a surprise disclosure at a New York investor conference last Tuesday, UnitedHealth conceded its customer service made doctors resentful and left some members frustrated.

Executives have placed the blame on rapid expansion, the complexity of medical reimbursements and difficulties in weeding out data errors that foul up claims. In interviews, two officials denied that UnitedHealth deliberately shortchanged providers as Schoedinger believes or that it treated regulatory penalties as mere business expenses.

“We do not ignore problems because somehow it serves our interest better,” said Ken Burdick , president and CEO of UnitedHealthcare , a key insurance unit of UnitedHealth. “We would never say, ‘Hey, we know it’s broken, but we aren’t going to fix it.”Forrest Burke , general counsel  for the company, said mishandled claims produce complaints and appeals, which raise administrative costs and can result in penalties under state laws. “Our objective is to get it right and paid correctly the first time,” he said.

Health care billing is a complicated process. Billing codes exist for every medical procedure, and requests for payment are processed by computers, usually without human intervention. Payments are influenced by state laws and health plan contracts. Insurers also use proprietary software to adjust or “downcode” payment requests — a byzantine process that physician groups complain is unfair.

UnitedHealth’s multi-state agreement in August  calls for closer monitoring over three years and additional penalties if the company doesn’t improve its complaint processing and customer service. Company executives said the company, which processes 20 million claims a month, is getting better.

 Over the past eight years, the regulator files show, the company often took too long to pay claims, though that wasn’t all. In Florida, where computer-related claims problems surfaced in 2000, regulators also found that a company HMO didn’t properly notify providers when reducing their payments.

In Missouri, regulators reported that 10,400  HMO members had been charged excessive copays. In Texas, the opposite happened: Insurance-company computers incorrectly deducted double copays from 1,910 physicians and other providers.

Arizona insurance regulators questioned denials in 600 emergency-room claims in 2001-2003. North Carolina’s insurance commissioner in 2004 reported numerous instances of long-unresolved claims. Nebraska alleged hundreds of violations in 2006, including repeated instances where computers rejected colon­oscopy claims.

In Minnesota, where UnitedHealth has a small market share, regulators have not reported such problems. But Wisconsin regulators demanded that three UnitedHealth units shape up two years ago. The company paid an apparent  record $600,000 penalty, and its claims and appeals practices are being monitored. In its most recent report, the company passed.

Jorge Gomez , Wisconsin’s insurance commissioner at the time of that enforcement action, said the problems “appeared to me to be unintentional errors, or just poorly designed technical infrastructure to manage certain types of claims.” He said UnitedHealth’s rapid expansion and the merging of data systems probably contributed to the errors.

A mess in California

In late 2005, UnitedHealth completed its $7.9 billion acquisition of PacifiCare Health Systems, based in Cypress, Calif. Within a year, California regulators noticed a spike in consumer and provider complaints and began looking into them, said Andrea Rosen, an attorney for the California Department of Insurance.

Getting paid wasn’t the only problem. Dr. Robert Watson III,  a Modesto, Calif., pediatrician, discovered that UnitedHealth’s computers identified him an out-of-network physician even though he signed a network contract to accept lower reimbursement rates.

To make matters worse, the company sent letters to patients’ families warning — incorrectly — that if Watson kept treating their kids, their medical bills would go up. His billing clerk Raeanna  Jackson spent seven months making more than 25 calls to UnitedHealth, all documented in nine pages of notes detailing unreturned phone calls and paperwork lost by the insurer.

The mistake eventually got fixed for Watson, but he said he has no way to know how many families stopped coming because of the letter.

UnitedHealth admits it mishandled the PacifiCare changeover. “We are not proud of the integration work and the migration around the PacifiCare business,” said Burdick, the UnitedHealthcare president.

He added that things have improved since last year, and that Stephen Hemsley, who became UnitedHealth Group CEO in November 2006, is taking the company in a new direction. “We’ve entered into a new phase in our history, and Steve is driving a different kind of culture,” Burdick said.

The American Medical Association says no other insurer has prompted as many complaints from its physicians about unfair and abusive reimbursement practices as UnitedHealth. AMA officials said they have met with its executives 16 times since 2000 on billing issues with little to show for it.

“They have always got a new plan to fix it,” said Dr. William G. Plested III , past president of the AMA. “We used to walk away and think something would happen. Now we just walk away and smile at each other because it is the same old thing, nothing ever happens.”

It’s fixed — or maybe not

Even when the company improves, as it says it did after $364,750 in penalties last year in Arizona, the problems can linger. Mandarin Cheung-Yueh,  a piano teacher in Scottsdale, Ariz., needed to see a specialist at Mayo Clinic Arizona, and did what every wise patient should do last May; she called her health plan to confirm that her doctor was part of the network.

A call center employee checked the computer, she said, and assured her that tax-identification numbers for Mayo and the doctor showed them as in-network. She made an appointment, confident she wouldn’t get socked with high out-of-network charges.

After a few visits to Mayo Clinic, Cheung-Yueh began checking the benefit notices from United HealthCare Insurance Co.  Two early charges were paid in-network, then the insurer began processing them as out-of-network. Her medical bills grew — to $1,310 — as did her frustration.

In repeated calls to the company, she said, employees told her the bills should be covered as in-network charges. The benefit notices said the opposite.

It took five months of phone calls, the submittal of 25 pages of call logs and other paperwork and a complaint to the Arizona Insurance Department before the insurer paid up.

Even then, UnitedHealth didn’t concede its system failed, only that it couldn’t determine what employees had told Cheung-Yueh when she called in advance.

As it turned out, the call center had it wrong: Neither Mayo nor the physician was in her plan’s network.

David Shaffer • 612-673-7090

Star Tribune reporter Patrick Kennedy and researcher Roberta Hovde contributed to this report.