California files order against HealthNet for stiffing addiction recovery providers

Hydrocodone opioid pills
The opioid crisis has naturally driven the rise of addiction recovery facilities. But one insurer, HealthNet, has resisted paying claims from those facilities. (Getty/smartstock)

For the second time in just over a year, California regulators have warned the insurer HealthNet Inc. it is violating state and federal laws by refusing to pay substance use treatment providers, a warning that could lead to millions of dollars in penalties.

Late last month, California's Department of Insurance (DOI) formally issued an order to show cause against HealthNet, setting up a hearing to potentially penalize the Centene-owned company with fines that could reach hundreds of millions of dollars.

It marks the second time the insurer has been warned by the state over the span of 13 months and comes as the nation is grappling with an opioid epidemic that has led to 350,000 opioid overdose deaths in the last two decades. In June 2017, the agency sent an order to HealthNet's lawyers after providers began filing complaints over HealthNet withholding payments to addiction recovery facilities. The DOI later withdrew the order after it appeared HealthNet was settling underpaid claims with providers.

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The July order, obtained by FierceHealthcare (PDF), said the insurer failed to pay inpatient and outpatient claims according to its policy, which resulted in the "underpayment and unfair settlement of claims." Specifically, the DOI says HealthNet paid claims from residential treatment centers by substituting a bundled per diem Medicare rate "for an entirely different service furnished by an entirely different facility."

Medicare does not provide a rate for inpatient or outpatient residential treatment centers because the facilities are not eligible to participate in Medicare. "Health Net did not pay their claims pursuant to the terms of the policy, instead of using an improper methodology not supported by the terms of the policy," the notice states. 

Additionally, the DOI says, beginning in 2016, HealthNet referred all providers that filed complaints to its Special Investigations Unit (SIU) "prior to performing a reasonable review of the claims." Several lawsuits filed against HealthNet by substance use providers have claimed HealthNet began "robo-signing" medical necessity denials. 

“These business practices resulted in illegitimate denials and delayed payment of claims,” the notice states. “Referring claims requests without proper investigation is an unreasonable standard for the investigation and processing of claims."

RELATED: Federal watchdog slams Health Net for ‘unprecedented’ refusal to comply with vulnerability testing

The state says HealthNet's action violated several portions of the California state insurance code as well as the federal Mental Health Parity and Addiction Equity Act of 2008. 

HealthNet must request a hearing with an administrative law judge, who will hear oral arguments and evidence to make a recommendation to Insurance Commissioner Dave Jones, who will decide the final penalty. If Health Net fails to schedule a hearing or respond, the penalty described in the order will become final: $5,000 for each "non-willful" act and $10,000 for each willful act.

That could translate to a hefty penalty, depending on how the commissioner decides to calculate it. 

"If you’re talking about every claim, you're talking about hundreds of thousands of claims, so you're talking about hundreds of millions of dollars in fines," Richard Collins, an attorney with Calahan & Blaine in Santa Ana, California. Collins represents 13 substance use treatment providers currently suing HealthNet to recoup the unpaid claims. 

For its part, HealthNet says its actions were a response to fraudulent claims it began receiving in 2015 from out-of-network providers.

"After learning of these actions, Health Net took immediate action to combat the fraud and abuse within the substance abuse industry," a spokesperson said in an emailed statement. "Health Net is committed to quickly paying providers who have not engaged in wrongdoing, and we are equally committed to rooting out fraudulent and abusive practices from the California healthcare system. While we are disappointed with the California Department of Insurance’s (CDI) actions, we will continue to press our case with the CDI that healthcare providers engaged in fraudulent practices should not have automatic access to healthcare dollars."

The substance abuse treatment industry started fighting back in May 2016, when the Addiction Treatment Advocacy Coalition (ATAC) sent a letter to Commissioner Jones informing him of the problem. The letter (PDF) was signed by 120 California substance use treatment providers who experienced HealthNet's stonewalling.

The letter was accompanied by hundreds of individual complaints from providers. In June, Los Angeles-based provider Club Soda complained (PDF) to DOI that HealthNet denied $2 million in claims by robo-signing denials. ATAC said DOI received so many complaints it briefly took down its website.

"Basically they didn't pay correctly, for two years, all the substance abuse treatment facilities in Oregon, Washington, California, Arizona and Utah," Stampp Corbin, president of ATAC, told FierceHealthcare in an interview.

That had a big impact on the accessibility of substance abuse treatment in those areas, according to Corbin. When people insured by HealthNet had their treatment claims denied, providers had to pass those bills along to the patients. And since many of those patients couldn't afford to pay, some treatment providers reached the brink of bankruptcy.

Collins says three of his 13 clients have been forced to shut their doors. Just last month, Sovereign Health, one of the larger addiction treatment centers in Southern California, shuttered its facility, citing an ongoing dispute with HealthNet, according to the Orange County Register. 

RELATED: Senators slam Health Net for 'miserable' provider customer service, call on VA to intervene 

"You're treating people who have been addicted to drugs, who don't have a job or who just recently lost their job and they're on [probation]," Corbin said. "Where are they gonna have the money? So what ends up happening is the treatment facility eats all this money and that's what's created this consternation between treatment facilities and insurance companies."

HealthNet's dispute with substance abuse treatment providers has bled over into a March 2017 acquisition by Centene. Several Centene shareholders have filed suit against certain Centene directors over the acquisition, claiming they "knowingly misstated Health Net's business" by hiding $300 million in losses, some of which were attributed to substance abuse facilities. 

While the DOI's latest warning could be resolved the same way it was last year, the state may be more apt to take action the second time around. 

"A year later to see they are still in the same situation and really nothing has changed except for some window dressing, I believe DOI is thinking, 'Hmm, you fooled me once, I don't think I’ll let you fool me twice.' I think that's what's going to happen this time," Collins said.