HEALTH PLAN REGULATION: California Department of Insurance v. Pacificare Life & Health Insurance Co. (Court of Appeal, Fourth Appellate District, Division 3, G053914 and G056160)

CMA has provided information and witnesses in the Department of Insurance's (DOI) administrative action against Pacificare. In 2006, CMA presented a lengthy complaint to the DOI from 20 physician members concerning a variety of problems they encountered with Pacificare. Subsequently, the DOI conducted a year-long investigation that resulted in findings of hundreds of thousands of violations of the Insurance Code by Pacificare. In the fall of 2009, the DOI commenced a formal administrative action to prove Pacificare committed approximately 993,000 violations of the insurance laws and regulations. In June 2014, DOI issued a decision to impose penalties of more than $173 million against Pacificare.

United Healthcare, which acquired Pacificare in 2005, has appealed the decision to the Orange County Superior Court. The court held a 2-phase trial on Pacificare’s challenges. In the first phase, it reversed $91 million in penalties on the basis that such penalties relied on three insurance regulations that were invalid. In the second phase, the court reversed the remaining $87 million in penalties on various legal and factual grounds. The rulings in both trial phases were appealed.

On September 20, 2018, the Court of Appeal ruled in favor of the DOI on its appeal of the trial court’s phase-one trial ruling invalidating three insurance regulations that supported $91 million in penalties. The appellate court reversed the trial court, holding that all three insurance regulations are valid. The opinion, which serves as legal precedent, reopens the door for imposition of $91 million in penalties against Pacificare. A petition to review the Court of Appeal decision was denied on January 3, 2019. The appeal of the trial court’s phase-two ruling rejecting another $87 million in penalties remains pending with briefing expected to be complete in late 2019. The matter continues to be litigated and CMA will continue to stay involved as necessary to ensure that United Healthcare is held accountable for its violations.