State regulators in California are seeking to fine health insurer UnitedHealth Group, Inc. up to $9.9 billion for its lack of compliance with state law. The company allegedly failed to properly manage medical claims and pay doctors.

According to the California Department of Insurance, PacifiCare, a unit of UnitedHealth Group, violated California state law over a million times between 2006 and 2008. PacifiCare was purchased by UnitedHealth in 2006. A spokesman for the California Department of Health stated that each violation of state law is punishable by a fine of up to $10,000.

UnitedHealth released a statement via email denying the allegations. According to UnitedHealth, more than 90 percent of the alleged violations were administrative in nature. Specifically, the company contends that the majority of the alleged violations involve a failure to include specific language in standard claims correspondence throughout a four-month period in 2007. The company stated it will defend itself against the accusations of the Department of Insurance.

The case will go before an administrative law judge. No matter what the outcome, however, the actual penalty is unlikely to be as high as $9.9 billion. BMO Capital Markets analyst Dave Shove noted that the litigation process will likely be drawn out with the potential for appeals. He also speculated that the shocking proposed fine might be an attempt to grab headlines as midterm elections approach.

PacifiCare was also fined by the Department of Managed health Care for $2 million after the state regulator alleged that PacifiCare improperly denied medical claims for HMO policyholders. Although PacifiCare paid the fine, it did not admit liability.

Source: ABC News "California Seeks to Fine UnitedHealth up to $9.9 Billion" 9/8/10