FINAL REPORT OF ROUTINE EXAMINATION OF MANAGED HEALTH · PDF fileFINAL REPORT OF ROUTINE EXAMINATION OF MANAGED HEALTH ... states “If requested in writing by the plan, ... directed

January 27, 2015

Larry Tallman, President

Managed Health Network

2370 Kerner Blvd

San Rafael, CA 94901

FINAL REPORT OF ROUTINE EXAMINATION OF MANAGED HEALTH

NETWORK

Dear Mr. Tallman:

Enclosed is the Final Report of a routine examination of the fiscal and administrative

affairs of Managed Health Network (Plan), conducted by the Department of Managed

Health Care (Department), pursuant to Section 1382(a) of the Knox-Keene Health Care

Plan Act of 1975.1 The Department issued a Preliminary Report to the Plan on October

14, 2014. The Department accepted the Plan’s electronically filed response on November

26, 2014.

This Final Report includes a description of the compliance efforts included in the Plan’s

November 26, 2014 response, in accordance with Section 1382(c).

Section 1382(d) states “If requested in writing by the plan, the Director shall append the

plan’s response to the final report issued pursuant to subdivision (c). The plan may

modify its response or statement at any time and provide modified copies to the

department for public distribution not later than 10 days from the date of notification

from the department that the final report will be made available to the public. The

addendum to the response or statement shall also be made available to the public.”

Please indicate within ten (10) days whether the Plan requests the Department to append

its response to the Final Report. If so, please indicate which portions of the Plan’s

response shall be appended, and electronically file copies of those portions of the Plan’s

response exclusive of information held confidential pursuant to Section 1382(c), no later

than ten (10) days from the date of the Plan’s receipt of this letter.

1 References throughout this letter to “Section” are to sections of the Knox-Keene Health Care Service Plan

Act of 1975, as codified in the California Health and Safety Code, Section 1340, et seq. References to

“Rule” are to the regulations promulgated pursuant to the Knox-Keene Health Care Service Plan Act, found

at Chapter 2 of Division 1, Title 28, of the California Code of Regulations, beginning with Section 1300.43.

Edmund G. Brown Jr., Governor

State of California

Health and Human Services Agency

980 9th Street, Suite 500

Sacramento, CA 95814

916-255-2441 voice

916-255-2280 fax

[email protected] e-mail

Larry Tallman, President January 27, 2015

FINAL REPORT OF ROUTINE EXAMINATION Page 2

OF MANAGED HEALTH NETWORK

If the Plan requests the Department to append a brief statement summarizing the Plan’s

response to the Report or wishes to modify any information provided to the Department

in its November 26, 2014 response, please provide the electronically filed documentation

no later than ten (10) days from the date of the Plan’s receipt of this letter through the

eFiling web portal. Please file this addendum electronically via the Corrective Action

Plan system (CAP system) within the Online Forms Section of the Department's eFiling

web portal https://wpso.dmhc.ca.gov/secure/login/, as follows:

From the main menu, select “eFiling”.

From the eFiling (Home) menu, select “Online Forms”.

From the Existing Online Forms menu click on the “Details” for the DFO

Corrective Action Plan S14-R-196

Go to the “Messages” tab

o Select “Addendum to Final Report” (note this option will only be

available for 10 days after the Final Report has been issued)

o Select the deficiency(ies) that are applicable

o Create a message for the Department

o Attach and Upload all documents with the name “Addendum to Final

Report”

o Click “Send Message”

The Department finds the Plan’s compliance efforts are responsive to the deficiencies

cited and the corrective actions required. Therefore, no further response is required.

Questions or problems related to the electronic transmission of the response should be

directed to Susan Levitt at (916) 255-2443 or email at [email protected]. You may

also email inquiries to [email protected].

The Department will make the attached Final Report available to the public in ten

(10) days from the Plan’s receipt of this letter through the eFiling system. The

Report will be located at the Department’s website at View Department Issued Final

Examination Reports.




If there are any questions regarding this Report, please contact me.

Sincerely,

ORIGINAL SIGNED BY

Bill Chang, CPA

Supervising Examiner

Office of Financial Review

Division of Financial Oversight

Cc: Gil Riojas, Deputy Director, Office of Financial Review

Steven Alseth, Examiner IV (Supervisor), Division of Financial Oversight

Nina Moua, Examiner, Division of Financial Oversight

Dayana Joseph, Examiner, Division of Financial Oversight

Elizabeth Spring, Counsel, Office of Plan Licensing

Laura Dooley-Beile, Chief, Division of Plan Surveys

BACKGROUND INFORMATION FOR MANAGED HEALTH NETWORK

Date Plan Licensed: March 10, 1983

Organizational Structure: Managed Health Network (MHN) is a wholly

owned subsidiary of Managed Health Network, Inc.

which is, in turn, a wholly owned subsidiary of

Health Net, Inc. MHN relies on affiliate services to

conduct its business. MHN provides mental health

and managed care services under its subcontracts

with wholly owned subsidiaries of Health Net, Inc.

Type of Plan: MHN is licensed as a specialized health

maintenance organization (HMO) in the mental

health and chemical dependency service segment.

Provider Network: MHN offers members a network of Participating

Providers that include:

Psychiatrists

Psychologists

Clinical social workers

Marriage and Family Therapists

Masters level counselors

Chemical dependency, rehabilitation and

mental health facilities

Generally, MHN compensates its participating

providers on a fee-for-service basis.

Plan Enrollment: MHN reported 1,386,194 Commercial Group

enrollees at quarter ending March 31, 2014.

Service Area: MHN provides Employee Assistance Programs and

risk-based managed behavioral health care services

in all 58 counties in California.

Date of last Final

Routine Examination Report: May 16, 2011

FINAL REPORT OF A ROUTINE EXAMINATION OF

MANAGED HEALTH NETWORK

This is the Final Report of a routine examination of the fiscal and administrative affairs

of Managed Health Network (Plan), conducted by the Department of Managed Health

Care (Department) pursuant to Section 1382(a) of the Knox-Keene Health Care Plan Act

of 1975.1 The Department issued a Preliminary Report to the Plan on October 14, 2014.

The Department accepted the Plan’s electronically filed response on November 26, 2014.

This Final Report includes a description of the compliance efforts included in the Plan’s

November 26, 2014 response to the Preliminary Report, in accordance with Section

1382(c). The Plan’s response is noted in italics.

The Department examined the Plan’s financial report filed with the Department for the

quarter ended March 31, 2014, as well as other selected accounting records and controls

related to the Plan’s various fiscal and administrative transactions. The Department’s

findings are presented in this Report as follows:

Section I. Financial Statements

Section II. Calculation of Tangible Net Equity

Section III. Compliance Issues

Section IV. Non-routine Examination

The Department finds the Plan’s compliance efforts are responsive to the

deficiencies cited and the corrective actions required. Therefore, no further

response is required.

1 References throughout this letter to “Section” are to sections of the Knox-Keene Health Care Service Plan

Act of 1975, as codified in the California Health and Safety Code, Section 1340, et seq. References to

“Rule” are to the regulations promulgated pursuant to the Knox-Keene Health Care Service Plan Act, found

at Chapter 2 of Division 1, Title 28, of the California Code of Regulations, beginning with Section 1300.43.




SECTION I. FINANCIAL REPORT

The Department’s examination did not result in any adjustments or reclassifications to the

Plan’s March 31, 2014 financial statements filed with the Department. A copy of the

Plan’s financial statements can be viewed at the Department’s website by typing the link

http://wpso.dmhc.ca.gov/fe/search.asp and selecting Managed Health Network on the first

drop down menu. No response is required to this Section.

SECTION II. CALCULATION OF TANGIBLE NET EQUITY (TNE)

Net Worth as reported by the Plan as of Quarter

Ended March 31, 2014

$ 4,273,454

Less: Unsecured Affiliate Receivable-Past Due

70,409

Tangible Net Equity

$ 4,203,045

Required TNE

745,418

TNE Excess per Examination Quarter Ended March 31, 2014

$ 3,457,627

The Plan is in compliance with the TNE requirement of Section 1376 and Rule 1300.76 as of

March 31, 2014.

No response is required to this Section.

SECTION III. COMPLIANCE ISSUES

A. CLAIM SETTLEMENT PRACTICES

Section 1371.37 (a) prohibits a health care service plan from engaging in an unfair

payment pattern. Subsection (c) sets forth the claim settlement practices that are

considered as an “unfair payment pattern”.

The Department’s examination found that the Plan failed to comply with the claim

settlement practices for the three month period from January 1, 2014 to March 31, 2014

as follows:

PAYMENT OF INTEREST ON LATE CLAIMS

Section 1371 requires a specialized health care services plan to reimburse uncontested

claims no later than 30 working days after receipt of the claim. This section also requires

that if an uncontested claim is not reimbursed within 30 working days receipt, interest




shall accrue at the rate of 15 percent per annum beginning with the first calendar day after

the 30 working day period.

Section 1371 and Rule 1300.71(i)(2) and (j) requires that interest at the rate of 15 percent

per annum for the period of time that the payment is late shall be automatically included

in the claim payment of a complete claim. The penalty for failure to comply with this

requirement shall be a fee of ten ($10) dollars paid to the claimant.

The Department reviewed 50 late paid claims, the entire population for the three-month

period from January 1, 2014, to March 31, 2014, to determine if interest was paid

correctly in accordance with the above requirements. The Department found that the Plan

did not pay interest on 2 (Sample # LP-2 and LP-16) out of 50 late claims (or 96%

compliance rate). According to the Plan, when a major event, such as a bank robbery,

occurs to a bank that is an enrollee, the bank will contact the Plan to send a provider for

employee counseling. The provider then files its claims with the Plan. The Plan’s system

does not automatically apply interest to these types of claims if they are paid late.

The Plan was required to submit a Corrective Action Plan (CAP) to substantiate the

corrective actions implemented to comply with the above Section and Rules. The CAP

should address the deficiencies cited above and include the following:

1) Identification of all late paid claims for which interest and penalties were not

correctly paid from July 1, 2010, through the date corrective action is implemented by

the Plan.

2) Evidence that interest and penalties, as appropriate, are paid retroactively for the

claims identified in paragraph “1)” above. This evidence was to include an electronic

data file (Excel or dBase) or schedule that identifies the following:

Claim number

Date of service

Date original claim received

Date new information received

Date complete claim received

Total billed

Total paid

Paid date (mailed date)

Number of days late used to calculate interest

Interest amount paid

Date interest paid

Penalty amount paid

Additional interest amount paid, if applicable

Date additional interest paid, if applicable

Check Number for additional interest and penalty paid amount

Provider name




The data file was to include the total number of claims, and the total additional interest

and penalty paid as a result of remediation.

3) Policies and procedures (P&P) implemented to ensure that the correct interest is paid

on all late paid claims, as a result of the deficiency cited above, pursuant to the above

Section and Rule.

The Plan was also required to demonstrate that it provided training to its staff and

established internal auditing procedures to ensure that P&P are followed. In addition, the

Plan was required to provide the date of implementation and the management position(s)

responsible for ensuring continued compliance.

PLAN’S RESPONSE

The Plan responded that it respectfully disagrees that the results of the examination

demonstrate that the “Plan failed to comply with the claim settlement practices for the

three month period January 1, 2014, to March 31, 2014” because 1) the late payment

accuracy score of 96% is better than the usual 95% benchmark historically applied by

the Department to determine a deficiency; 2) the overall volume of these specific

occurrences where claims were paid late without interest was very low. In fact, these

were only two claims of this type paid late in all of 2014, and only seven of these types of

claims were paid late since July 2010.

However, the Plan has developed system logic to automate interest payment on these

claim types, has updated desktops to ensure claims paid late in the interim are

consistently paid with interest (manually), and has identified and corrected any impacted

claims since the conclusion of the last examination. The Plan updated the desktop

procedure 155-03 “Critical Incident Stress Debriefing (CISD), Job Performance Referral

(JPR) & Interpreter Claims” on October 16, 2014 for added clarity to ensure Examiners

understand the requirement of processing these claims timely, and to add any interest

and/or penalty amounts, if required. The Plan attached the revised desktop procedure

(Critical Incident Stress Debriefing CISD, Job Performance Ref.pdf). Claims Examiners

and the Quality Audit team were updated on the clarified process on October 16, 2014.

The Director of Claims is the management position responsible for compliance with the

requirement and updated desktop. These types of claims are included in standard claims

auditing procedures conducted daily by the Plan’s internal Quality Audit and Training

team.

The Plan attached an evidence spreadsheet that showed the Plan has remediated and

paid the applicable interest plus penalties on the impacted claims since July 10, 2010.

The Department finds that the Plan’s compliance effort is responsive to the corrective

action required.




B. PROVIDER DISPUTE RESOLUTION (PDR) MECHANISM PROCESS

Rule 1300.71.38(m)(2) states that the failure of the plan to comply with the requirements

of a fast, fair and cost-effective dispute resolution mechanism shall be a basis for

disciplinary action against the plan.

The Department’s examination found that the Plan failed to comply with the

requirements for the provider dispute resolution mechanism for the three month period

from January 1, 2014, to March 31, 2014, as follow:

1. RESCIND OR MODIFY AN AUTHORIZATION

Section 1371.8 states that a health care service plan that authorizes a specific type of

treatment by a provider shall not rescind or modify this authorization after the provider

renders the health care service in good faith and pursuant to the authorization for any

reason, including, but not limited to, the plan’s subsequent rescission, cancellation, or

modification of the enrollee’s or subscriber’s contract or the plan’s subsequent

determination that it did not make an accurate determination of the enrollee’s or

subscriber’s eligibility.

The Department’s examination found that the Plan rescinded authorizations on two (2)

(samples # PDR 16 and PDR 17) out of 16 PDRs (or an 87% compliance rate). On PDR

16, the Plan gave a registration (assigned provider) to provide services to an enrollee.

The provider perceived that an authorization to provide services had been given by the

Plan. However, the claims for the services were denied. On PDR 17, the Plan gave the

Provider an authorization for 10 sessions, but denied the seventh visit.

During the examination, the Plan paid both PDR claims with the proper interest due. The

Plan was required to provide the policies and procedures implemented to ensure that the

correct payment is made to providers to whom authorizations were granted, in

accordance with the above Section. In addition, the Plan was required to provide the date

of implementation and the management position(s) responsible for ensuring continued

compliance.

PLAN’S RESPONSE

The Plan responded that it implemented a new desk-level procedure ensuring correct

payment is made to providers for whom authorizations were granted. Case Coordinators

were also instructed to review statements in the call notes that could be deemed as

authorization for any services provided. The Director of the Appeals and Grievances

Department is responsible for the implementation, compliance and monitoring of this

process.


action required.




2. PAST DUE PAYMENTS

Rule 1300.71.38 (g) states if a provider dispute or amended provider dispute involves a

claim and is determined in whole or in part in favor of the provider, the plan or the plan’s

capitated provider shall pay any outstanding monies determined to be due, and all interest

and penalties required under sections 1371 and 1371.35 of the Health and Safety Code

and section 1300.71 of title 28, within five (5) working days of the issuance of the

Written Determination. Accrual of interest of penalties for the payment of these resolved

provider disputes shall commence on the day following the expiration of “Time for

Reimbursement” as set forth in section 1300.71(d).

The Department’s examination found that the Plan’s determination letter indicates that

the Plan will pay in seven (7) to ten (10) working days.

The Plan was required to revise its determination letter to state that payments resulting

from a dispute are mailed out within five (5) days of the determination letter. The Plan

was required to state in its response the date of implementation, the management position

responsible for compliance, and the controls implemented for monitoring continued

compliance.

PLAN’S RESPONSE

The Plan responded that the Plan has revised the resolution letter in accordance with

rule 1300.71.38 to reflect that payment will be made within five (5) working days. Case

Coordinators were notified of this change on September 30, 2014. The Plan notes that,

despite this language appearing in the determination letters, all provider dispute

payments were paid within five (5) working days of determination. The Director of the

Appeals and Grievances Department is responsible for the implementation, compliance

with and monitoring of this process. Final Letters will be reviewed as part of oversight to

ensure this process is compliant.


action required.

3. PAYMENT AS GOODWILL

Rule 1300.71.38(f) requires a plan to issue a written determination stating the pertinent

facts and explaining the reasons for its determination within 45 working days after the

date of receipt of the provider dispute.

Rule 1300.71.38(g) states that if the provider dispute or amended provider dispute

involves a claim and is determined in whole or in part in favor of the provider, the plan or

the plan’s capitated provider shall pay any outstanding monies determined to be due, and

all interest and penalties required under sections 1371 and 1371.35 of the Health and

Safety Code and section 1300.71 of Title 28.




The Department’s examination disclosed that one (1) (sample# PDR 1) out of 16 PDRs

was paid late and did not include interest. The Plan paid the claim as a gesture of

goodwill to the provider. The Plan’s determination letter did not include adequate

language to inform providers that the payment was a gesture of goodwill; therefore,

interest and penalties were not included with the goodwill payment.

The Plan was required to revise its determination letter for a goodwill payment to clearly

state that payment is being made as a gesture of goodwill, and that the original decision

to deny the claim is not being overturned. A copy of the revised goodwill letter should be

provided in the Plan’s response to the Preliminary Report.

PLAN’S RESPONSE

The Plan responded that it reminded Case Coordinators of the correct protocol

regarding goodwill payments on September 30, 2014. On October 17, 2014, a refresher

training session was conducted with the entire staff, in which this case was reviewed as

an example. Case Coordinators were educated regarding the requirement that a

statement be included in the resolution, clearly advising the complainant that the

decision is based on a gesture of goodwill and does not include/require interest or

penalties as part of the final payment. Final letters will be reviewed as part of oversight

to ensure this process is compliant.


action required.

C. SOLICITOR AGREEMENT

Rule 1300.67.12 requires that the Plan shall not permit a solicitor firm to solicit enrollments or subscriptions on its behalf except pursuant to a written contract, which meets all of the following minimum requirements: (a) All funds received by the solicitor firm for the account of the plan shall at all times be segregated from assets of the solicitor firm and shall be promptly deposited to a trust account in a state or federal bank authorized to do business in this state and insured by an appropriate federal insuring agency. “Promptly deposited” means deposited no later than the business day following receipt by the solicitor firm. (b) All funds received by the solicitor firm for the account of the plan shall be transmitted to the Plan, or to the person designated in the contract, net of actual commissions earned under the particular contract within five (5) business days after such funds are received by the solicitor firm. (c) The solicitor firm shall comply and shall cause its principal persons and employees to comply with all applicable provisions of the Act and the rules thereunder.

(d) The solicitor firm shall promptly notify the plan of the institution of any disciplinary proceedings against it or against any of its principal persons or employees relating to any license issued to any such person by the California Insurance Commissioner.




The Department’s examination disclosed that the Plan has not entered into agreements with solicitors (brokers) to whom the Plan pays sales commissions. Instead of a formal agreement with the solicitors, the Plan has appointment letters from employer groups authorizing the Plan to pay commissions to the broker representing the employer group. The appointment letters do not contain provisions required by the sections above.

The Plan was required to draft a contract that it will execute with solicitors that contains

the provisions required by Rule 1300.67.12. The Plan was also required to file the draft

contract through the Department’s eFiling system. The plan should provide the filing

number for the contract in its response, and confirm that it has executed the agreement

with solicitors.

The Plan was required to state the date of implementation of the corrective action, the

management position(s) responsible for ensuring compliance and the controls

implemented for monitoring continued compliance.

PLAN’S RESPONSE

The Plan responded that it has filed a commission administration agreement form with

the Licensing Division of the Department, filing #20142683, incorporating the provisions

the Department required in the above statement of deficiency. The Plan will await

Licensing Division’s review prior to implementing the filed form. The Plan attached a

copy of the form for reference.

The Regional Vice President of Sales & Account Management and the Manager of

Account Management are responsible for ensuring compliance with this process.


action required.

SECTION IV. NON-ROUTINE EXAMINATION

The Plan is advised that the Department may conduct a non-routine examination, in

accordance with Rule 1300.82.1, to verify representations made to the Department by the

Plan in response to this Report. The cost of such examination will be charged to the Plan

in accordance with Section 1382 (b).

No response is required to this Section.

Documents

FINAL REPORT OF ROUTINE EXAMINATION OF MANAGED HEALTH · PDF fileFINAL REPORT OF ROUTINE EXAMINATION OF MANAGED HEALTH ... states “If requested in writing by the plan, ... directed