News Release

DEPARTMENT CITES CIGNA HMO FOR CLAIMS-HANDLING VIOLATIONS
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DELAYS, POOR RECORD KEEPING AND UNPAID INTEREST ARE AMONG THE FINDINGS

TRENTON - Banking and Insurance Commissioner Holly C. Bakke today released the findings and recommendations of a Department prompt payment examination that reveals excessive claims-payment delays and other claims-related violations by CIGNA Healthcare of New Jersey.

CIGNA, of Jersey City, failed in more than 84,000 cases during the Department's review period to comply with a state "prompt-pay" law that sets time limits for either paying or denying the claims of doctors and hospitals. CIGNA also engaged in underpayments, failed to pay the required 10-percent interest penalty on late claims payments, and in general failed to keep adequate records and controls of its claims-handling process, according to the investigation by the Market Conduct unit of the Department's Consumer Protection Services division.

Commissioner Bakke explained that Market Conduct examinations are designed to accomplish four goals: to ensure that policyholders get what they pay for; to identify areas in which a company is performing well, and encourage those practices in the future; to identify immediate corrective actions that a company must implement; and to provide the basis for recommending sanctions. As in past cases, today's adoption of the Market Conduct Exam is just the beginning; fines will be set later, and CIGNA's willingness to take corrective action will be considered.

In the case of the CIGNA examination, the Market Conduct unit noted specific cases where the company had to act to meet its responsibilities to policyholders and providers, including through the payment of all due interest penalties; identified the company's strong performance with in-house claims handling; identified 12 areas for improving claims handling and record keeping by the company's vendors; and referred all of the findings to the Enforcement Unit of the Office of Consumer Protection Services for review and possible administrative action.

Commissioner Bakke added that the Department would continue to closely monitor CIGNA's compliance in each of the areas identified in the report.

"Today's announcement is a signal to New Jersey's HMOs, and indeed to all companies regulated by the Department, that our commitment to vigorous enforcement is unequivocal," Commissioner Bakke said. "Investigations of this kind have occurred before, but without the deterrent that comes from a broad notification to citizens. Today marks a new direction for the Department."

The law requires health plans to pay properly completed claims within 40 days of receipt, if the claim was mailed, or within 30 days of receipt of if the claim was submitted electronically. The same time limits apply to denials due to incomplete or improperly completed claims.

The examination report, adopted today, found a 26-percent overall error rate in CIGNA claims handling between January 1, 2000, and December 31, 2000. Specific findings include:

• an average 10-percent failure rate for the timely payment of legitimate claims, consisting of a 26-percent percent failure rate for claims processed by CIGNA subcontractors and a 2-percent failure rate for claims handled "in-house;"
• an average 10-percent failure rate for the timely notification of claims denials, consisting of a 41-percent failure rate for claims processed by subcontractors and a 2-percent failure rate for claims handled "in-house;" and
• a 96 percent failure rate for paying providers the required interest penalty on late claims payments, resulting in a projected $61,513 in unpaid interest penalties.

"We recognize that the prompt-pay law has required insurers to make substantial operational improvements, and such changes aren't always easy," Commissioner Bakke said. "But the findings of this examination make it clear that CIGNA's noncompliance is the result of more than growing pains or simple human error. The numbers show that CIGNA has done a good job with claims handled in-house. At the same time, it did a poor job overseeing the vendors it hired as claims-handling subcontractors. As CIGNA and all other carriers should know, the law places the responsibility for a subcontractor's performance squarely on the shoulders of the carrier."

Commissioner Bakke noted, however, that doctors and other healthcare providers also play a key role in claims handling. "Submitting incomplete or improperly completed claims extends the time until proper payment, increases the chance of errors, and in general taxes the resources of the health plan that's paying the bill," Commissioner Bakke said. "Providers should also make full use of the Alternate Dispute Resolution process, where differences can be settled without regulatory intervention."

Other findings of the Market Conduct examination include:

• an underpayment of claims in four of 27 randomly-selected cases, or 15 percent, where CIGNA shared responsibility for the claim with another insurer;
• unexplained adjustments to the payment amounts of previous claims in 20 of 54 randomly-selected cases, or 37-percent, where the proper amount should have been paid from the beginning; and
• inadequate safeguards to prevent claims from being lost, resulting, in one example, in CIGNA's inability to find 36 of 66 claims that were cited in complaint letters as having been neither paid nor denied despite repeated requests.

CIGNA also failed to provide accurate claims-handling data to the Department, resulting in months of delays to the examination. Examples include:

• the provision of a defective subcontractor database on April 12, 2001, in response to a Department request for the database on February 21, 2001;
• the provision of a revised but still incorrect database on May 7, 2001, and not providing the correct data to the Department until July 13, 2001 -- 142 days after the original request; and
• the provision of requested claims-handling data in improper combination with non-requested data from a sister company, Connecticut General Insurance Co., rendering the data useless and the resulting findings erroneous.

"When CIGNA has trouble providing accurate information to regulators, the reliability of their communications with providers and patients is called into serious question," Commissioner Bakke said. "I am pleased, however, that CIGNA acted quickly to fix problems as they were identified during our examination, and that the company continues to work closely with the Department on these matters."

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