California insurance regulators say they could ask for as much as $1.3 billion in fines and other penalties in connection with allegations that a unit of a managed care company violated claims processing rules and other rules.

The California Department of Insurance says it is taking action against a health insurance company subsidiary of PacifiCare Health Systems Inc., Cypress, Calif., a managed care company acquired by UnitedHealth Group Inc., Minnetonka, Minn., in 2005.

A market conduct exam that covered files processed between July 1, 2005, and May 31, 2007, identified 130,000 violations of claims-handling standards, department officials allege.

Violations included some wrongful denials of covered claims as well as incorrect payments of claims, losses of documents, failures to acknowledge receipts of claims in a timely fashion, multiple requests for documentation that was previously provided, failures to respond to member appeals and providers in a timely fashion, and failures to manage provider network contracts and resolve provider disputes, officials allege.

PacifiCare already has paid more than $1 million to consumers and providers as a result of the investigation, officials say.

California law could permit regulators to collect “up to $650 million if all violations are proved and shown to be non-willful and up to $1.3 billion if all violations are proved and shown to be willful,” officials say.

The California Department of Managed Health Care has found similar violations at a PacifiCare health maintenance organization and assessed a penalty of $3.5 million, officials say.

UnitedHealth notes that it has not yet received any indication that the California Department of Insurance has determined a penalty amount.

Regulators still are working with UnitedHealth and PacifiCare to develop corrective-action plans, UnitedHealth says.

“While there is a theoretical maximum penalty, we believe the [insurance] commissioner will take into consideration the fact that the vast majority of the violations were identified by the company, administrative in nature and did not result in harm to our members,” UnitedHealth says.

About 80,000 of the violations noted were related to not sending providers an acknowledgement letter for claims received, UnitedHealth says.

“However, the majority of these claims were paid timely,” the company says.

Most of the HMO problems were found at a point-of-service plans that cover only 60,000 of the 1.25 million PacifiCare California HMO members, UnitedHealth says.

The health insurance company violations occurred at a preferred provider organization business that covers only 130,000 of UnitedHealth’s 860,000 PPO members in California, the company says.

UnitedHealth is adding 50 full-time employees in California to address issues related to claims processing and data entry, provider dispute resolution and resolution of provider claims, the company says.

UnitedHealth also has centralized point-of-service plans claims processing in Cypress, the company says.