NU Online News Service, March 24, 2003, 12:57 p.m. EST – PacifiCare Health Systems Inc., Cypress, Calif., says it may take responsibility for some obligations of three physician groups that failed in Texas.

PacifiCare says its Texas subsidiary has entered into a “binding memorandum of understanding” with the Texas Attorney General and the Texas Department of Insurance that calls for it to make good on the obligations of the failed physician groups to providers that treated PacifiCare plan members.

The memorandum also calls for PacifiCare’s Texas subsidiary to drop its countersuit against the state, and for the subsidiary to pay the state $4.25 million in fines, fees and reimbursement payments.

Texas has agreed to postpone investigations related to the dispute for 12 months while PacifiCare begins making good on the obligations of the failed Texas physician groups. “If all conditions to the settlement are not met, then litigation could resume,” PacifiCare says.

The memorandum should lead to a definitive settlement agreement in 30 days, PacifiCare says.

The dispute is the result of provider contracts that PacifiCare’s Texas subsidiary negotiated in the 1990s. The subsidiary agreed to give the physician groups flat “capitation” payments for each primary-care patient served. The groups were supposed to use some of the revenue to pay for specialty care, but the groups failed and left many specialists unpaid.

PacifiCare originally argued that it had satisfied its obligations when it sent the three physician groups their capitation payments. It insisted that the specialists ought to try to collect from the failed physician groups.

Texas regulators argued that PacifiCare had no legal right to delegate responsibility for payments to the physician groups. The regulators sued PacifiCare over the issue in an Austin, Texas, state court in February 2002.