Washington Insurance Commissioner Conducts an Investigation of Regence BlueShield

October 27, 2011 -- When Mark Ganz, CEO and president of The Regence Group, met with Washington’s Insurance Commissioner, the message came across loud and clear – fix the system-wide problems that have led to a litany of complaints from policyholders.

Regence BlueShield of Washington had been withdrawing insurance premiums from the wrong bank accounts, and, in some cases, those accounts actually belonged to people who weren’t even Regence members. Thousands of claims weren’t being paid on time, particularly for retirees who were members of the state’s Public Employees Benefit Board.

Regence also caused distress among members who were scheduled for a surgical procedure within 72 hours, but learned the insurer had changed its mind and decided it would no longer pay for the operation.

Hearing about these complaints, Washington’s Insurance Commissioner Mike Kreidler was concerned that policyholders in Oregon, Idaho and Utah faced similar problems. So he held a meeting with regulators from all three states in early September, asking Ganz and his top brass why Regence was having so many serious problems.     

“My suspicion was that this was a systematic problem affecting all the states, but after talking with regulators I learned that Washington had a disproportionate share of those problems, not close to what we’d been experiencing, which surprised me,” Kreidler said.

Initially, Kreidler’s office gave Regence until the end of September to come up with a corrective action plan, but now has extended the deadline to early November.  

Regence has tried to reassure Kreidler they’re resolving the problems identified in a lengthy memorandum.

But, “again, we don’t know that for a fact and we want verification so the same problems don’t resurface,” said Kreidler, who insisted it was too early to talk about imposing financial penalties. “We want to make sure that the state’s largest insurer doesn’t have policyholders who aren’t receiving the services they’re paying for. We’ll be watching Regence more closely. We want to make certain the issues are fixed the right way.”

Regence BlueShield has more than 1 million members as the state’s largest insurer in Washington. In January it began managing the state employee benefits, paying their claims as a third-party administrator. That four-year contract is worth $33.4 million the first year alone.   

Complaints Alerted Kreidler to Regence’s Problems

Shortly after Regence took over the state employee contract, complaints started streaming into Kreidler’s office, particularly from retirees and providers who hadn’t been paid. “It was a huge book of business, and apparently their computer system wasn’t ready to handle it,” he said.

In August, providers were still awaiting payment for 300,000 claims on behalf of 90,000 retirees who had used the health plan as a Medicare supplement. Since then, Regence has knocked that number down to about 155,000.   

The electronic banking system run by Regence, known as SurePay, also malfunctioned in early August, causing 6,400 billing errors in Washington, Oregon, Utah and Idaho, after routing numbers were erroneously entered.

Money was taken out of the wrong bank accounts, and, in 200 cases, those people weren’t even Regence members. “That got our attention,” said Kreidler who released the following statement, “The Regence Group needs to get its act together.”

In his memo, Kreidler pointed out other deficiencies of Regence, among them:

• Failure to properly install a new information technology system that serves all the companies within The Regence Group
• Unreasonable denial of coverage for removal of women’s contraceptive intrauterine devices which led to a $100,000 fine. Regence was also fined $125,000 for violations including not paying for prostate-cancer screenings
• Requiring persons under age 19 to complete a questionnaire asking for their pre-existing conditions, which was illegal. Regence didn’t become compliant until after the Insurance Commissioner issued a cease and desist order.
• Poor customer service by not staffing a phone number for consumer questions. When people called that number they were told to call back on Thursday, but, when they did, no one answered.

In Oregon, Regence was weeks late in submitting rate and form filings about its association health plan business in Vancouver, and only agreed to comply when notified by the insurance commissioner’s deputy

In Defense of Regence

When contacted about the concerns raised by Washington’s Insurance Commissioner, Regence issued the following statement:

“Regence has experienced some operational difficulties which have unfortunately impacted our ability to provide the level of service our members, customers and providers have come to expect of us,” according to Rachelle Cunningham, media relations manager. “Our service level challenges are due in large part to a one-time system change at the beginning of the year, as well as a number of recent benefit changes under health care reform.

“While these issues are temporary, and in several cases have already been corrected, we deeply regret that we have fallen short on our service commitments to a small portion of our more than 1 million members, as it is our goal is to fully serve all of our members all of the time.

“Regence has been transparent with our members and with the Office of the Insurance Commissioner (OIC) as we have worked to correct the issues. We implemented corrective actions, many before the OIC became involved, and have made significant improvements:

“State retiree claims (UMP) — we have acknowledged that Regence has taken too long to pay its share of many state retirees’ medical claims, in which we are the secondary payer after Medicare. The reason for the delay was two-fold: Regence underestimated the number of these types of claims that we would receive.

“Adding to the unexpected volume of claims is their high level of complexity. Regence essentially needs to coordinate and apply two sets of benefits to these claims, and it’s important to us that we process them correctly. To that end, last summer Regence directed additional resources to help reduce the claims backlog and to date, our total inventory reduction is exceeding forecast.

“Regence is providing the Health Care Authority with weekly reports, and we are currently ahead of schedule to return our claims inventory to acceptable levels by the end of the year. The Health Care Authority issued a news release expressing its satisfaction with the progress being made on the claims backlog.

“Surepay — in August, Regence’s automatic payments system, “Surepay,” experienced an operational malfunction causing a bank routing error. This error caused 6,671 Regence members’ premium to not be withdrawn on the scheduled date but did not have any impact on their coverage.

“Additionally, 201 non-members had funds withdrawn incorrectly because of the bank routing error. Further, because of how some banks identify automatic withdrawal transactions to their customers some Regence members’ names and identification numbers were inadvertently disclosed. Upon being alerted to the error, we notified all members who were affected that we had identified the problem and put systems in place to resolve it. We notified the banks of non-members, and worked with them to immediately restore any funds that were erroneously withdrawn.

“We developed a pre-audit process to check for errors and in September, the malfunction was not repeated and automatic payments were properly processed. Additionally, we continue to review all of our auditing processes related to the Surepay system to ensure it is functioning accurately and timely.

“The Surepay system has been in use for more than five years, and has correctly processed millions of transactions. While any error is unacceptable, this was an isolated incident that impacted a very small number of total transactions.

“Many of the problems the OIC has cited are isolated occurrences, which have long been corrected. We are disappointed that our state regulators are choosing to mischaracterize them as systemic issues, which is causing unnecessary concern among Regence members and customers, as well as the more than 400 Regence employees in Burlington who have worked tirelessly to reduce the UMP claims backlog.

“We have been in close contact with the OIC as we have worked through the issues, and we will continue to communicate with the agency, as well as regulators in all of the states in which we operate, in a manner that appropriately protects our members’ privacy and personal health information. “

FOR MORE INFORMATION

Read about how Regence spent $19.3 million on a fitness and nutrition company it’s closing.

Read about the major shake-up in leadership changes experienced by Regence.

And last by not least, read about Regence BlueCross BlueShield coming close to losing its membership lead in Oregon, compared to other insurance carriers.