BLUE SHIELD OF CALIFORNIA LIFE & HEALTH INSURANCE … Conduct Exam... · 2020. 1. 22. · blue...

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[IN ACCORDANCE WITH CALIFORNIA INSURANCE CODE (CIC) SECTION 12938, THIS REPORT WILL BE MADE PUBLIC AND PUBLISHED ON THE

CALIFORNIA DEPARTMENT OF INSURANCE (CDI) WEBSITE]

WEBSITE PUBLISHED REPORT OF THE MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF

BLUE SHIELD OF CALIFORNIA LIFE & HEALTH INSURANCE COMPANY

NAIC # 61557 CDI # 1450-6

AS OF APRIL 30, 2016

ADOPTED DECEMBER 20, 2019

STATE OF CALIFORNIA

CALIFORNIA DEPARTMENT OF INSURANCE MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

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NOTICE

The provisions of Section 735.5(a) (b) and (c) of the California

Insurance Code (CIC) describe the Commissioner’s authority

and exercise of discretion in the use and/or publication of

any final or preliminary examination report or other

associated documents. The following examination report is

a report that is made public pursuant to California Insurance

Code Section 12938(b)(1) which requires the publication of

every adopted report on an examination of unfair or

deceptive practices in the business of insurance as defined

in Section 790.03 that is adopted as filed, or as modified or

corrected, by the Commissioner pursuant to Section 734.1.

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TABLE OF CONTENTS

FOREWORD ................................................................................................................... 1

SCOPE OF THE EXAMINATION ................................................................................... 2

EXECUTIVE SUMMARY ................................................................................................ 4

DETAILS OF THE CURRENT EXAMINATION .............................................................. 7

TABLE OF TOTAL ALLEGED VIOLATIONS .............................................................. 11

SUMMARY OF EXAMINATION RESULTS .................................................................. 15

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FOREWORD

This report is written in a “report by exception” format. The report does not

present a comprehensive overview of the subject insurer’s practices. The report

contains a summary of pertinent information about the lines of business examined,

details of the non-compliant or problematic activities that were discovered during the

course of the examination and the insurer’s proposals for correcting the deficiencies.

When a violation that reflects an underpayment to the claimant is discovered and the

insurer corrects the underpayment, the additional amount paid is identified as a

recovery in this report.

While this report contains violations of law that were cited by the examiner,

additional violations of CIC § 790.03 or other laws not cited in this report may also apply

to any or all of the non-compliant or problematic activities that are described herein.

All unacceptable or non-compliant activities may not have been discovered.

Failure to identify, comment upon or criticize non-compliant practices in this state or

other jurisdictions does not constitute acceptance of such practices.

Alleged violations identified in this report, any criticisms of practices and the

Company’s responses, if any, have not undergone a formal administrative or judicial

process.

This report is made available for public inspection and is published on the

California Department of Insurance website (www.insurance.ca.gov) pursuant to

California Insurance Code section 12938(b)(1).

http://www.insurance.ca.gov/

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SCOPE OF THE EXAMINATION

Under the authority granted in Part 2, Chapter 1, Article 4, Sections 730, 733,

and 736, and Article 6.5, Section 790.04 of the California Insurance Code; and Title 10,

Chapter 5, Subchapter 7.5, Section 2695.3(a) of the California Code of Regulations, an

examination was made of the claim handling practices and procedures in California of:

Blue Shield of California Life & Health Insurance Company

NAIC # 61557

Group NAIC # 2798

Hereinafter, the Company listed above also will be referred to individually as Blue

Shield Life, BSL, or the Company.

This examination covered the claim handling practices of the aforementioned

Company on Individual and Group Health claims closed during the period from May 1,

2015 through April 30, 2016. Additionally, the examination targeted the claims handling

practices on mental health claims closed under its Individual and Group Health policies

during the period from May 1, 2015 through April 30, 2016. The examination was made

to discover, in general, if these and other operating procedures of the Company

conform to the contractual obligations in the policy forms, the California Insurance Code

(CIC), the California Code of Regulations (CCR), the California Mental Health Parity

Act, the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), and case

law.

To accomplish the foregoing, the examination included:

1. A review of the guidelines, procedures, training plans and forms adopted by

the Company for use in California including any documentation maintained by the

Company in support of positions or interpretations of the California Insurance Code, Fair

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Claims Settlement Practices Regulations, and other related statutes, regulations and

case law used by the Company to ensure fair claims settlement practices.

2. A review of the application of such guidelines, procedures, and forms, by

means of an examination of a sample of individual claim files and related records.

3. A review of the California Department of Insurance’s (CDI) market analysis

results; and if any, a review of consumer complaints and inquiries about this Company

closed by the CDI during the period May 1, 2015 through April 30, 2016, a review of

previous CDI market conduct claims examination reports on these Company; and a

review of prior CDI enforcement actions.

4. A review of electronic paid claims data for timeliness of payment of claims,

and the proper payment of interest if payment was issued beyond 30 working days from

date of receipt.

5. A review of the Company’s response to a CDI questionnaire pertaining to

Company procedures during the review period for complying with the California Mental

Health Parity Act (CIC § 10144.5) and coverage for essential health benefits pursuant to

the Patient Protection and Affordable Care Act (CIC § 10112.27).

The review of the sample of individual claim files was conducted at the offices of

the Company in Rancho Cordova, California and at the offices of the California

Department of Insurance in Sacramento, California.

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EXECUTIVE SUMMARY

The Individual and Group Health claims reviewed were closed from May 1, 2015

through April 30, 2016, referred to as the “review period”. The examination also

targeted the claims handling practices of the Company on mental health claims. The

mental health claims reviewed were closed from May 1, 2015 through April 30, 2016.

The examiners randomly selected 160 Individual and Group Disability Health

claim files, 90 Individual and Group Disability Mental Health claim files, and 25

pharmacy claim files for examination. The examiners cited 177 alleged claims handling

violations of the California Insurance Code and the California Code of Regulations and

other specified codes from this sample file review.

For the period May 1, 2015 through April 30, 2016, the Company was the subject

of 345 consumer complaints and inquiries in regard to the lines of business reviewed in

this examination. Of the complaints and inquiries, the CDI determined that 131

consumer complaints were justified. The CDI alleged 298 violations of law on the

justified complaints including, but not limited to; improper claim denials, unsatisfactory

settlement offers, claim handling delays, providing incorrect policy information to

insureds, and providing late responses to the Department’s inquiries. The examiners

focused on these issues during the course of the file review.

The previous claims examination reviewed a sample of claims closed from June

1, 2011 through May 31, 2012. The most significant non-compliant practices identified

in the claims closed during the June 1, 2011 through May 31, 2012 period were the

Company’s failure to provide additional time letters, a failure to diligently pursue a

thorough investigation, a failure to effectuate prompt, fair and equitable settlement of

claims, a failure to promptly reimburse claims, and misrepresenting to claimants

pertinent facts or insurance policy provisions. These issues were also identified as

problematic in the current examination.

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Findings of this examination included the following:

The Company failed to effectuate prompt, fair, and equitable settlements

of claims in which liability had become reasonably clear.

The Company failed to reimburse claims as soon as practical, but no later

than 30 working days after receipt of all information necessary to

determine payer liability.

The Company failed to include in its notice of a denied claim to the insured

or provider, the portion of the claim that was denied, and the specific

reasons including for each reason the factual and legal basis known at

that time by the insurer for denying the claim.

The Company misrepresented to claimants pertinent facts or insurance

policy provisions relating to any coverages at issue.

The examination also included an electronic analysis of all paid claims during the

review period to determine compliance with timeliness of payment of claims and

payment of interest requirements under California law. The electronic data field

parameters were: Date Claim Received, Date Claim Paid or Closed, and for contested

claims, the Date Additional Information Received and Date Claim Paid or Closed. The

electronic review initially identified 64,733 alleged violations of the California Insurance

Code, which included the failure to reimburse claims as soon as practical, but no later

than 30 working days after receipt of the claim, and the failure to pay interest on claims

paid beyond 30 working days. In response to the findings of the electronic review, the

Company provided additional claim data for the Department’s consideration. As a result

of the Company’s additional information, the Department now alleges 39,480 claims

were paid in excess of 30 working days of receipt, and interest was not included with

the payment on 32 of these claims. Therefore, the Department alleges a total of

39,512 violations of the California Insurance Code for the electronic analysis. The final

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sections of the report provide more details on these findings in section numbers 38, 39,

40, 41, 42, and 43.

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DETAILS OF THE CURRENT EXAMINATION

Further details with respect to the examination and alleged violations are

provided in the following tables and summaries:

BSL SAMPLE MEDICAL CLAIM REVIEW

LINE OF BUSINESS / CATEGORY CLAIMS IN

REVIEW PERIOD

SAMPLE CLAIMS

REVIEWED

NUMBER OF ALLEGED

VIOLATIONS

Disability Health / Group Paid 1,314,719 20 3

Disability Health / Group Denied 184,935 30 11

Disability Health / Group Contested 9,453 20 11

Disability Health / Individual Paid 448,957 20 7

Disability Health / Individual Denied 55,613 30 22

Disability Health / Individual Contested 2,100 20 31

Disability Health / Group Member Appeals 1,675 5 6

Disability Health / Group Provider Appeals 15,741 5 5

Disability Health / Individual Member Appeals 630 5 0

Disability Health / Individual Provider Appeals 4,157 5 10

Pharmacy / Paid 1,523,217 10 0

Pharmacy / Denied - Rejected 97,874 15 0

TOTALS 3,659,071 185 106

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*The total number of alleged violations identified in the electronic review also include those alleged violations identified in the actual claim review.

BSL ELECTRONIC MEDICAL CLAIMS PAID REVIEW

LINE OF BUSINESS / CATEGORY NUMBER OF CLAIMS NUMBER OF ALLEGED VIOLATIONS

Disability Health / Group Paid 1,314,719 25,567

Disability Health / Group Contested Paid 9,452 5,032

Disability Health / Individual Paid 448,957 7,707

Disability Health / Individual Contested Paid 2,100 192

TOTALS 1,775,228 38,498*

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BSL SAMPLE MENTAL HEALTH CLAIM REVIEW

LINE OF BUSINESS / CATEGORY CLAIMS IN

REVIEW PERIOD

SAMPLE CLAIMS

REVIEWED

NUMBER OF ALLEGED

VIOLATIONS

Disability Health / Mental Health / Group Paid 28,437 10 3

Disability Health / Mental Health / Group Denied

6,960 15 9

Disability Health / Mental Health / Group Contested

1,514 10 7

Disability Health / Mental Health / Individual Paid

11,004 10 0

Disability Health / Mental Health / Individual Denied

2,111 15 17

Disability Health / Mental Health / Individual Contested

457 10 4

Disability Health / Mental Health / Group Member Appeals

16 5 0

Disability Health / Mental Health / Group Provider Appeals

377 5 8

Disability Health / Mental Health Individual Member Appeals

6 5 7

Disability Health / Mental Health / Individual Provider Appeals

96 5 16

TOTALS 50,978 90 7171

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BSL ELECTRONIC MENTAL HEALTH CLAIMS PAID REVIEW

LINE OF BUSINESS / CATEGORY NUMBER OF CLAIMS NUMBER OF ALLEGED

VIOLATIONS

Disability Health / Mental Health / Group Paid 28,437 778

Disability Health / Mental Health / Group Contested Paid

408 45

Disability Health / Mental Health / Individual Paid

11,004 165

Disability Health / Mental Health / Individual Contested Paid

411 26

TOTALS 40,260 1014*

*The total number of alleged violations identified in the electronic review also include those

alleged violations identified in the actual claim review.

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TABLE OF TOTAL ALLEGED VIOLATIONS

BLUE SHIELD LIFE INSURANCE COMPANY

Citation Description of Allegation

Number of Alleged Violations

Sample Medical Claims Review

Mental Health

Targeted File Review

Electronic Analysis Medical Health Claims

Paid

Electronic Analysis Mental Health Claims

Paid

CIC §10123.13(a) *[CIC §790.03(h)(13)] Insured

The Company failed to include in its notice of a denied claim to the insured, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim.

30 7 -- --

CIC §10123.13(a) *[CIC §790.03(h)(13)] Provider

The Company failed to include in its notice of a denied claim to the provider, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim.

18 6 -- --

CIC §790.03(h)(1)

The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

12 8 -- --

CIC §790.03(h)(5)

The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.

4 11 -- --

CIC §10123.13(a) *[CIC §790.03(h)(3)]

The Company failed to include in its notice of a contested or denied claim that the provider may seek a review by the Department.

0 15 -- --

CIC §10123.13(a) *[CIC §790.03(h)(5)]

The Company failed to reimburse claims as soon as practical, but no later than 30 working days after receipt of the claim, or after receipt of all information necessary to determine payer liability.

10 3 38,488 992

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Mental Health



Paid


Paid

CCR §2695.3(a) *[CIC §790.03(h)(3)]

The Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed.

11 0 -- --

CIC §790.03(h)(3)

The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

0 6 -- --

CCR §2695.7(d) *[CIC §790.03(h)(3)]

The Company failed to conduct and diligently pursue a thorough, fair and objective investigation.

2 3 -- --

CIC §880 *[CIC §790.03(h)(3)]

The Company failed to conduct business in its own name.

0 4 -- --


The Company failed to notify the provider in writing, within 30 working days after receipt of the claim, that the claim was denied.

2 1 -- --

CCR §2695.7(g) *[CIC §790.03(h)(5)]

The Company attempted to settle a claim by making a settlement offer that was unreasonably low.

1 2 -- --

CCR §2695.11(b) *[CIC §790.03(h)(3)]

The Company failed to provide an explanation of benefits to the provider with each claim payment.

3 0 -- --

CIC §10123.131(b) *[CIC §790.03(h)(3)]

The Company requested information that is not reasonably necessary to determine liability for payment of a claim.

1 1 -- --

CCR §2695.11(d) *[CIC §790.03(h)(3)]

The Company failed, upon contesting a claim under CIC §10123.13, to affirm or deny the claim within 30 calendar days from the original notification.

1 1 -- --

CCR §2695.11(d) *[CIC §790.03(h)(3)] Insured

The Company failed to provide written notice of the need for additional time every 30 calendar days to the claimant.

2 0 -- --

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Mental Health



Paid


Paid

CCR §2695.11(d) *[CIC §790.03(h)(3)] Provider

The Company failed to provide written notice of the need for additional time every 30 calendar days to the provider.

2 0 -- --


The Company failed to notify the provider in writing, within 30 working days after receipt of the claim, that the claim was contested.

1 0 -- --

CIC §10123.13(b) *[CIC §790.03(h)(5)]

The Company failed to pay interest on an uncontested claim after 30 working days.

0 1 10 14

CIC §10123.13(c) *[CIC §790.03(h)(5)]

The Company failed to pay interest on a contested claim after 30 working days.

0 1 -- 8

CIC §10123.137(c) *[CIC §790.03(h)(3)]

The Company failed to resolve each provider dispute consistent with applicable law and issue a written determination within 45 working days after the date of receipt of the provider dispute.

1 0 -- --

CIC §10123.147(a) *[CIC §790.03(h)(3)] Insured

The Company failed to notify the insured in writing, within 30 working days after receipt of the emergency services claim, that the claim was contested.

1 0 -- --


The Company failed to notify the provider in writing, within 30 working days after receipt of the emergency services claim, that the claim was contested.

1 0 -- --

CIC §10123.147(b) *[CIC §790.03(h)(5)]

The Company failed to pay the greater of fifteen dollars ($15) per year or interest at the rate of 10 percent per annum beginning with the first calendar day after 30 working days for emergency services on an uncontested claim.

1 0 -- --

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Mental Health



Paid


Paid

CIC §10123.87 *[CIC §790.03(h)(5)]

The Company failed to pay for inpatient hospital care provided within 96 hours following a delivery by caesarean section.

1 0 -- --

CCR §2695.5(b) [CIC §790.03(h)(2)]

The Company failed to respond to communications within 15 calendar days.

1 0 -- --

CCR §2695.11(e) *[CIC §790.03(h)(2)]

The Company failed to provide preauthorization of non-emergency medical services within five calendar days after the request for preauthorization.

0 1 -- --

TOTAL NUMBER OF ALLEGED VIOLATIONS 106 71 38,498 1,014

*DESCRIPTIONS OF APPLICABLE UNFAIR CLAIMS SETTLEMENT PRACTICES

CIC §790.03(h)(2) The Company failed to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.

CIC §790.03(h)(3) The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

CIC §790.03(h)(5) The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear.

CIC §790.03(h)(13)

The Company failed to provide promptly a reasonable explanation of the bases relied upon in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.

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TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS DISABILITY HEALTH - MEDICAL

ACCIDENT AND DISABILITY (Disability Health - Medical)

BSL 2015 Written Premium: $1,245,254,048 BSL 2016 Written Premium: $310,215,354

AMOUNT OF RECOVERIES $512.94

NUMBER OF ALLEGED VIOLATIONS

CIC §10123.13(a) [CIC §790.03(h)(13)] 30

CIC §10123.13(a) [CIC §790.03(h)(13)] 18

CIC §790.03(h)(1) 12

CCR §2695.3(a) [CIC §790.03(h)(3)] 11

CIC §10123.13(a) [CIC §790.03(h)(5)] 10

CIC §790.03(h)(5) 4

CCR §2695.11(b) [CIC §790.03(h)(3)] 3

CIC §10123.13(a) [CIC §790.03(h)(13)] 2

CCR §2695.7(d) [CIC §790.03(h)(3)] 2

CCR §2695.11(d) [CIC §790.03(h)(3)] 2

CCR §2695.11(d) [CIC §790.03(h)(3)] 2

CIC §10123.13(a) [CIC §790.03(h)(3)] 1

CIC §10123.131(b) [CIC §790.03(h)(3)] 1

CIC §10123.137(c) [CIC §790.03(h)(3)] 1

CIC §10123.147(a) [CIC §790.03(h)(3)] 1

CIC §10123.147(a) [CIC §790.03(h)(3)] 1

CIC §10123.147(b) [CIC §790.03(h)(5)] 1

CIC §10123.87 [CIC §790.03(h)(5)] 1

CCR §2695.7(g) [CIC §790.03(h)(5)] 1

CCR §2695.11(d) [CIC §790.03(h)(3)] 1

CCR §2695.5(b) [CIC §790.03(h)(2)] 1

SUBTOTAL 106

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TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS MENTAL HEALTH

ACCIDENT AND DISABILITY

(Disability Health - Mental Health) BSL 2015 Written Premium: $1,240,833,121 BSL 2016 Written Premium: $310,215,354

AMOUNT OF RECOVERIES $32,595.76

NUMBER OF ALLEGED VIOLATIONS

CIC §10123.13(a) [CIC §790.03(h)(3)] 15

CIC §790.03(h)(5) 11

CIC §790.03(h)(1) 8

CIC §10123.13(a) [CIC §790.03(h)(13)] 7

CIC §790.03(h)(3) 6

CIC §10123.13(a) [CIC §790.03(h)(13)] 6

CIC §880 [CIC §790.03(h)(3)] 4

CIC §10123.13(a) [CIC §790.03(h)(5)] 3

CCR §2695.7(d) [CIC §790.03(h)(3)] 3

CCR §2695.7(g) [CIC §790.03(h)(5)] 2

CIC §10123.13(a) [CIC §790.03(h)(13)] 1

CIC §10123.13(b) [CIC §790.03(h)(5)] 1

CIC §10123.13(c) [CIC §790.03(h)(5)] 1

CIC §10123.131(b) [CIC §790.03(h)(3)] 1

CCR §2695.11(d) [CIC §790.03(h)(3)] 1

CCR §2695.11(e) [CIC §790.03(h)(2)] 1

SUBTOTAL 71

TOTAL 177

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SUMMARY OF EXAMINATION RESULTS

The following is a brief summary of the criticisms that were developed during the

course of this examination related to the violations alleged in this report.

In response to each criticism, the Company is required to identify remedial or

corrective action that has been or will be taken to correct the deficiency. The Company

are obligated to ensure that compliance is achieved.

Any noncompliant practices identified in this report may extend to other

jurisdictions. The Company should address corrective action for other jurisdictions

when applicable.

Money recovered within the scope of this report was $33,108.70 as described in

section numbers 17, 23(c), 23(d), 23(e), 23(h), 23(j), 29(c), 31, 33, 34, 39, 42, and 43

below.

ACCIDENT AND DISABILITY (HEALTH) – SAMPLE MEDICAL FILE REVIEW 1. In 30 instances, the Company failed to include in its notice of a denied claim to the insured, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(13). 1(a). In 18 instances, the Explanation of Benefit (EOB) sent to the insured did not provide the reason for the denial. Summary of the Company’s Response to 1(a): The Company acknowledges the EOB should have included a denial reason. The Company does not agree it violated CIC §790.03(h)(13). The Company was following its guidelines in processing claims and an inadvertent, temporary system error preventing denial messages from appearing on EOBs was discovered and corrected by March 20, 2016. This system error, which lasted less than 10 weeks, did not impact or change the Company’s

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general business practice or instructions to staff regarding denied claims and notifications.

The Company completed an upgrade of its claims processing system during the audit period. Large volumes of claims and enrollment data were transferred from one system to a new claims processing system. Some short-term system problems occurred as a result of this upgrade and were timely resolved. To remediate this EOB “glitch,” as well as other issues, the Company investigated the root cause of the system errors and implemented definitive corrective action. As a result of the system upgrades and subsequent problem resolution, the Company can more consistently monitor, review, test, and validate its EOB output to ensure the proper communication of payment and denial details to both insureds and providers. This particular system problem related to EOB messaging was resolved on or about March 20, 2016. Beginning October 2018, the Company instituted testing of system-generated messaging to ensure correlation with electronic communications to insureds and providers (the efforts described in this paragraph are hereinafter referred to as the “Systems Remediation Plan”).

In response to the Department’s assertions of the Company’s alleged violation of CIC §790.03(h)(13) in this paragraph 1(a) and other subsections of CIC §790.03(h) in subsequent findings, the Company respectfully disputes, as a matter of law, the Department’s characterization that the Company’s conduct as described in this Examination summary constitutes unfair practices under CIC §790.03(h). To constitute a violation of CIC §790.03(h), the relevant conduct must be “[k]nowingly commit[ed] or perform[ed] with such frequency as to indicate a general business practice….” With few exceptions, the cited instances of CIC §790.03(h) violations were unintentional human error or transient system faults that were corrected upon discovery. Additionally, the Department often cites either a single instance or an isolated claim processor’s error as an alleged violation of CIC §790.03(h). As a matter of law, conduct on a single occasion or a series of isolated errors do not and cannot constitute a general business practice. This explanatory paragraph will be relied on in the below Summaries of the Company’s Response and referred to as the “Company’s response to the CIC §790.03 allegation.” 1(b). In 11 instances, the Company did not provide an explanation for the partial denial of these claims. In eight of these instances, the EOBs state the following: “The allowed amount for this claim is based on the provisions of the patient’s plan.” In two of these instances, the EOBs state the following: “The physician or other health care provider is not part of this plan's provider network, and therefore, is not required to accept the amount allowed as payment in full. The subscriber is responsible for deductibles, copayment amounts, non-covered items, and the difference between the billed charge and allowed amount.” In one of these instances, the EOB contains no remarks at all.

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Summary of the Company’s Response to 1(b): The Company disagrees the claims were partially denied in all identified instances. Services from nonparticipating providers are covered at a specified percentage of the allowable amount, and billed amounts above the allowable amount are not part of the benefit. The Company states out-of-network reimbursement is defined in the policy and explained in the EOBs. And, these claims were all paid in full pursuant to the insured’s out-of-network benefits. Accordingly, paying the allowable amount rather than the provider’s billed charges is not a denial or a partial denial of a claim.

The statutory requirement under CIC §10123.13(a) that the Company provide a specific explanation as to why such excess amounts were not paid is inapplicable as it only applies to contested or denied claims. See id. ("The notice that a claim is being contested or denied shall identify the portion of the claim that is contested or denied and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for contesting or denying the claim." Because these claims were neither contested nor denied, no explanation is required under CIC §10123.13(a). In this instance, the EOBs did, in fact, clearly reflect why the provider’s “billed” amount was not paid. Therefore, there is no violation of CIC §10123.13(a). The Company’s Response to the CIC §790.03 allegation is incorporated herein by reference.

Notwithstanding the foregoing, the Company instituted a Claims payment quality

initiative beginning in 2015 and extending into 2016, to review all EOB messaging. Effective November of 2016, member EOBs now clearly state the provider’s billed amount and the allowable amount and explains why any difference between these amounts was not paid and, when appropriate, identify such amounts as an uncovered service. 1(c). In one instance, the EOB sent to the insured included four charges for laboratory services. Explanations for the adjustment of two procedures were provided; however, two laboratory services were denied with no explanation. Summary of the Company’s Response to 1(c): The Company states it does not agree it violated CIC §790.03. (See also the Company’s response to the CIC §790.03 allegation). The claim was paid based on the terms of the provider’s contract with respect to unbundled services and agreed upon allowable amounts for covered procedures. The basis upon which the Company paid the claim is indicated in the EOB. In one line of the EOB there is a remark code that states, “payment for this procedure is included in payment for another procedure performed on the same day (Current Procedural Terminology (CPT) 80050).” That same remark code should have been applied to CPT codes 80053 and 85025 as these were also unbundled services. The Company’s Claim Check process ensures it pays claims accurately and does not overpay for services rendered by providers based on their unbundling of services (which results in paying more than once or more than allowed for a service). The Claim Check utility was updated and changes implemented in July 2017. Since then corrections have been made to EOB messages to ensure the appropriate information is displayed

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when a service is denied. The Company conducts on-going review of EOB messaging to members and providers and corrections and clarifications are made when indicated. In addition, the Company is working with a high-volume lab provider to improve EOB messaging when services are unbundled. Despite the missing information, the claim was paid accurately and the insured is not liable for the Company’s share of the allowable amount when a contracting provider submits a claim that includes unbundled charges. 2. In 18 instances, the Company failed to include in its notice of a denied claim to the provider, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(13). 2(a). In 13 instances, the EOB sent to the provider did not provide the reason for the denial. Summary of the Company’s Response to 2(a): The Company acknowledges the EOB should have included a denial reason. The Company does not agree it violated CIC §790.03(h)(13). (See also the Company’s response to the CIC §790.03 allegation). The Company was following its guidelines in processing claims and an inadvertent, temporary system error preventing denial messages from appearing on EOBs was discovered and corrected by March 20, 2016. This system error, which lasted less than ten weeks, did not impact or change the Company’s general business practice or instructions to its staff regarding denied claims and notifications. The Company further states there is no violation of this statute because it corrected this unintentional temporary system error upon discovery, which evidences this was not the Company’s general business practice. As concerns remediation, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 2(b). In two instances, the Company failed to explain to the provider the specific reason(s) it determined the services were considered experimental or investigational. The EOB to the provider stated the following: “This service or item is identified in Blue Shield of California Medical Policy as investigational or experimental and therefore is not covered.”

Summary of the Company’s Response to 2(b): The Company states it does not agree it violated the laws cited. (See also the Company’s response to the CIC §790.03 allegation). The Company indicates the provider contract informs the provider of facts relevant to coverage, one fact being there is no payment for experimental or investigational services. The provider’s EOB states this fact and therefore complies with the requirement to provide the factual or legal basis for the denial. The EOB states: “This service or item is identified in Blue Shield of California Medical Policy as investigational or experimental and therefore is not covered.” This provides the specific factual basis for the denial; that is, the service at issue was investigational or

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experimental, and therefore not a covered benefit. Additionally, the California Legislature did not intend that CIC §10123.13 should require an insurer to provide all of the content of its medical policies when describing the basis for the denial. If it had, it would have so stated as it did in CIC §10123.135, which requires the insurer to provide such policies upon request. Therefore, the Company asserts no additional level of specificity is required. Nonetheless, as a remedial measure, the Company agrees to issue a letter describing the clinical (factual) basis for the denial (i.e., medical policy guideline) when clinical judgement is applied in determining to deny a claim as experimental or investigational. 2(c). In two instances, the Company did not provide an explanation for the partial denial of these claims. The EOBs state the following: “The allowed amount for this claim is based on the provisions of the patient’s plan.” Summary of the Company’s Response to 2(c): The Company disagrees the claims were partially denied in both instances. The certificate of insurance describes the benefit for services from nonparticipating providers. The insured’s benefit is limited to a defined percentage of the allowable amount and amounts that exceed the benefit are not part of the coverage. The allowable amounts and the insured’s benefit are also explained in the EOBs. And, these claims were all paid in full pursuant to the insured’s benefit plan. Accordingly, paying according to the benefit rather than the provider’s billed charges is not a denial or a partial denial of a claim.

The statutory requirement under CIC §10123.13(a) that the Company provide a specific explanation as to why such excess amounts were not paid is inapplicable as it only applies to contested or denied claims. See id. ("The notice that a claim is being contested or denied shall identify the portion of the claim that is contested or denied and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for contesting or denying the claim." (Emphasis added). Because these claims were neither contested nor denied, no explanation is required under CIC §10123.13(a).

The Company respectfully disagrees with the Department’s finding of alleged violations of CIC §10123.13(a) based on the facts described above as a matter of law. As CIC §10123.13(a) was not violated, the Company respectfully submits that CIC §790.03(h)(13) is also inapplicable in. See also the Company’s Response to the CIC §790.03 Allegation, which is incorporated herein by reference.

Although CIC §10123.13(a) does not apply, the EOBs did clearly explain why the provider’s “billed” amount was not paid. In addition, the Company instituted a Claims payment quality initiative beginning in 2015 and extending into 2016, to review and clarify, as indicated, all member and provider EOB messaging. As noted in the Summary of the Company’s Response to 1(b), above, revisions have been made to EOB messages to ensure that more detailed information is displayed when the claim payment amount differs from the claim submission amount.

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2(d). In one instance, the EOB sent to the provider included four charges for laboratory services. Explanations for the adjustment of two procedures were provided; however, two laboratory services were denied with no explanation. Summary of the Company’s Response to 2(d): The Company states it does not agree it violated CIC §790.03. (See also the Company’s response to the CIC §790.03 allegation). The claim was paid based on the terms of the provider’s contract with respect to unbundled services and the agreed upon allowable amounts for covered procedures. The basis upon which the Company paid the claim is indicated in the EOB. In one line of the EOB there is a remark code that states, “payment for this procedure is included in payment for another procedure performed on the same day (CPT 80050).” That same remark code should have been applied to CPT codes 80053 and 85025 as these were also unbundled services. The Company’s claim check process ensures it pays claims accurately and does not overpay for services rendered by providers based on their unbundling of services (which results in paying more than once or more than allowed for a service). The Claim Check utility was updated and changes implemented in July 2017. Since then corrections have been made to EOB messages to ensure the appropriate information is displayed when a service is denied. The Company conducts on-going review of EOB messaging to members and providers and corrections and clarifications are made when indicated. In addition, the Company is working with a high-volume lab provider to improve EOB messaging when a lab service is unbundled. Despite the missing information, the claim was paid accurately and the insured is not liable for the Company’s share of the allowable amount when a contracting provider submits a claim that includes unbundled charges. 3. In 12 instances, the Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. The Department alleges these acts are in violation of CIC §790.03(h)(1). 3(a). In five instances, the EOB message erroneously indicated the treating physician was not a network provider although the treating physician was a participating provider in the Company’s network. Summary of the Company’s Response to 3(a): As an initial matter, the Company disputes the characterization that the alleged violations constitute unfair practices under CIC §790.03(h)(1) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company does acknowledge the EOBs should have included accurate information regarding the provider’s network affiliations, but did not due to a system error of limited duration. Nonetheless, the Company has taken remedial measures to mitigate the risks that such system errors occur in the future -- please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a), above, with the only difference being, that the remediation occurred on or about June 8, 2016.

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3(b). In three instances, the EOB message incorrectly informed the insured their plan had no deductible. Summary of the Company’s Response to 3(b): The Company agrees a portion of the EOB provided the insured with inaccurate information regarding the deductible in all instances. The message was an inadvertent system error; however, the claim was processed correctly. In addition, the table in the EOB that defines Amount Billed, Amount Allowed, and Patient Responsibility (including Deductible) contains accurate information and informs the provider and insured of the amount applied to the insured’s deductible. This situation involved an inadvertent system error in an EOB message that had no effect on the administration of benefits or the other information in the EOB showing the correct amounts that applied to the deductible. The Company does not agree that such error constitutes a violation of CIC §790.03(h)(1). (See also the Company’s response to the CIC §790.03 allegation). Therefore, there is no violation of the statute. For remediation measures, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 3(c). In two instances, the EOB message erroneously informed the insured that their deductible had been met. Summary of the Company’s Response to 3(c): The Company does not agree that such error on an EOB constitutes a violation of CIC §790.03(h)(1). (See also the Company’s response to the CIC §790.03 allegation). The Company states the one remark on the EOB was incorrect due to a system error that was corrected on August 18, 2017. All other information on the EOB was accurate, including the amount allowed and insured’s responsibility for the deductible. Thus, all other information on the EOB would lead the reader to conclude that a deductible does exist, and the insured owes an amount under the deductible. For remediation measures, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 3(d). In one instance, the Company provided an incorrect denial message on the EOB. Summary of the Company’s Response to 3(d): The claim submitted by the insured was incomplete and missing multiple fields of data required to process the claim, including the procedure code and diagnosis code. The claim was rejected in error, causing an incorrect message to appear on the insured’s EOB. In this instance, the individual claims processor inadvertently misapplied a denial code, which was not consistent with the Company’s policy. Therefore, the Company disagrees that such error on an EOB constitutes a violation of CIC §790.03(h)(1). (See also the Company’s response to the CIC §790.03 allegation). As a result of the Department’s audit, the claim was reprocessed. To ensure future compliance, the Company educated the claims processor in December of 2016, regarding the correct processing of claims and the applicable processing guidelines with respect thereto.

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3(e). In one instance, the EOB message informed the insured they received network savings defined as “Amount saved by using a network provider”; however, the treating physician was not a network provider. Summary of the Company’s Response to 3(e): In reviewing the Department’s findings, the Company does not agree that such error on an EOB constitutes a violation of CIC §790.03(h)(1). (See also the Company’s response to the CIC §790.03 allegation). The Company acknowledges the one remark on the EOB was incorrect, which was system generated. There are no other inaccuracies noted on the EOB. For remediation measures, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 4. In 11 instances, the Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed. In five instances, the Company failed to retain correspondence acknowledging provider appeals. In five instances, the Company failed to retain fax communication to the provider. In the remaining instance, a copy of the provider dispute letter was not retained in the claim file. The Department alleges these acts are in violation of CCR §2695.3(a) and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(3). (See also the Company’s response to the CIC §790.03 allegation). In the first five instances, the Company’s practice is to record provider disputes into the Company’s system and send an acknowledgement letter to the provider. In these instances, the acknowledgement letters were sent, but copies of such correspondence were not retained due to a temporary system problem. The Company resolved the temporary system problem in the second quarter of 2016 and has subsequently instructed its auditors to check for the acknowledgement letter during routine audits.

With respect to the five instances regarding the retention of fax communications to providers, triage processers failed to retain faxed requests for additional information. The Company corrected this in September 2016 and now retains copies of such correspondence. Processing documentation has also been updated to include system notes. Additionally, updates to all applicable guidelines and refresher training for triage processors, with instructions to retain faxes as part of the record, were completed by October 6, 2016.

In the remaining instance, the standard procedure is that provider disputes are received at the Company’s mail facility and are electronically imaged and routed to the activation vendor. In this instance, an individual processor failed to follow our manual letter generation workflow, which includes a step for saving a copy of the letter to our files. All denials are reviewed on a monthly basis and when indicated, desk level

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documentation is updated and a formal training plan is put in place to ensure processors understand the correct processing of the claim. 5. In 10 instances, the Company failed to reimburse claims as soon as practical, but no later than 30 working days after receipt of the claim, or after receipt of all information necessary to determine payer liability. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(5). In eight instances, the claims were paid as soon as practical and with interest pursuant to CIC §10123.13. In one instance, the Company agrees the claim was not processed within 30 working days; however, the allowed amount was applied to the insured’s deductible. Therefore, no payment was required to be made to the provider as the insured had not satisfied his/her deductible. In the final instance, a second request was sent for additional medical records. After receiving the complete records, the Company adjusted the claim and paid it in 33 working days. The Company disputes the characterization of the alleged violations of CIC §10123.13(a) as constituting unfair practices under CIC §790.03(h)(5) because such violations are not examples of the Company “not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear” and for the reasons previously provided. (See also the Company’s response to the CIC §790.03 allegation). As remediation, BSL implemented a new claims inventory management system in the second quarter of 2018 to improve inventory control which includes an organized set of documented controls, concepts, behaviors, procedures and process flows. This system allows the process owners to achieve targeted results in predictable, methodical and sustainable fashion, maximizing efficiency and quality. Key considerations include people, process and technology management. In addition, a pending claims report is produced and reviewed daily to monitor and promptly address aged claims.

6. In four instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. The Department alleges these acts are in violation of CIC §790.03(h)(5). 6(a). In two instances, the Company wrongfully denied the claims. Summary of the Company’s Response 6(a): The Company states it does not agree it violated the law cited. (See also the Company’s response to the CIC §790.03 allegation). In the first instance, the radiology service was included in an outpatient Emergency Room (ER) visit by the insured. Professional services that may be emergency-related are stopped in the Company’s claims system so the processor can research for a matching ER outpatient claim or an admission. In this instance, the claim was misidentified as an inpatient service, which would normally require a modifier on the radiology code to identify it as either the professional or technical radiological

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component. On appeal, the dispute coordinator identified the error and reprocessed the claim to allow it for payment at the provider’s contracted rate. The Company states this was an individual/human processing error and is not reflective of its policies and procedures.

In the second instance, the Company’s claims system denied the service due to an error in the Diagnosis Code on the original claim submitted by the provider. The system did not recognize the procedure as covered for the insured’s diagnosis. On appeal, the review of the medical policies and medical records for this procedure confirmed that it was a covered service and the prior denial was overturned. The Company reprocessed and paid the claim with interest. The Company’s business practice is to fairly and promptly process claims and there was no violation in this instance. Based on the original claim submission, it was not reasonably clear that there was liability to pay the claim under the benefit plan and pursuant to medical policy. It was only upon further review this became clear, and at which point the Company paid the claim.

In sum, in both instances, the original claims were denied due to inadvertent errors in processing and subsequently reprocessed in line with the Company’s claims processing policies and procedures. To ensure future compliance, the Company educated the claims processors on the correct processing of a claim and applicable processing guidelines in January 2017. 6(b). In one instance, the Company denied the claim and instructed the insured and provider to submit the claim to Medicare. However, the claim was not subject to coverage under Medicare. Summary of the Company’s Response 6(b): The Company states the claim was auto-adjudicated and received an incorrect EOB message code indicating it was subject to Medicare coverage. Upon discovering the error, the Company reprocessed and paid the claim. For remediation measures, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. The Company states it disagrees it violated the law cited because the single instance identified is of insufficient frequency to indicate a general business practice. (See also the Company’s response to the CIC §790.03 allegation). 6(c). In the remaining instance, the Company contested/denied the claim in error as the claims processor believed the provider had incorrectly billed for professional services. Summary of the Company’s Response 6(c): The Company acknowledges the original claim was denied in error, which is not consistent with the Company’s claims processing policies and procedures. As a result of a phone call, the claim was reprocessed. The Company states it disagrees that a single instance of error constitutes a violation of the law cited. (See also the Company’s response to the CIC

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§790.03 allegation). All denials are reviewed on a monthly basis. As a result of this review, desk-level processing instructions are updated as indicated and formal training instituted to ensure the processors’ understanding of correct claim processing procedures. 7. In three instances, the Company failed to provide an explanation of benefits to the provider with each claim payment. The Department alleges these acts are in violation of CCR §2695.11(b) and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company agrees no EOB was sent to the nonparticipating provider due to a system issue that was discovered and corrected in August 2016. The Company was following its guidelines in processing claims and an inadvertent, temporary system error prevented an EOB from being issued to nonparticipating providers. The Company asserts this error did not impact or change the Company’s general business practice of timely notice. The Company disagrees there was a violation of CIC §790.03(h)(3) because the Company corrected this temporary system error upon discovery, which evidences this was not the Company’s general business practice. (See also the Company’s response to the CIC §790.03 allegation). For remediation measures, please see the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 8. In two instances, the Company failed to notify the provider in writing, within 30 working days after receipt of the claim, that the claim was denied. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(13). Summary of the Company’s Response: The Company does not agree it violated §790.03(h)(13). (See also the Company’s response to the CIC §790.03 allegation). The Company acknowledges no EOB was sent to the nonparticipating provider due to a system issue that was discovered and corrected in August 2016. The Company asserts this error did not impact or change the Company’s general business practice of timely payment and notice. The Company’s remediation measures are described in the Systems Remediation Plan included in the response to paragraph 1(a) above. 9. In two instances, the Company failed to conduct and diligently pursue a thorough, fair and objective investigation. In the first instance, the Company received an appeal from the provider, on behalf of the insured, directed to Provider Dispute Resolution (PDR) and delayed forwarding the appeal to the Member/Insured Appeals Unit for 63 days. In the second instance, the Company delayed adding a newborn to the eligibility file and paid the claims late without documenting that it was contested (over 100 days). The Department alleges these acts are in violation of CCR §2695.7(d) and are unfair practices under CIC §790.03(h)(3).

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Summary of the Company’s Response. With respect to the first instance, the Company’s Provider Dispute Resolution (PDR) department has a designated address for submission of provider disputes which is given to its providers. If mail for a BSL department is sent to the wrong address, the receiving department will forward the correspondence to the correct department. The Company, therefore, initially logged the communication as a provider dispute because the provider submitted the appeal to the PDR Department. The case was properly forwarded to the PDR queue and was assigned to a PDR coordinator who, upon reviewing the case facts, reclassified it as an insured appeal. The case was then appropriately forwarded to the Company’s member/insured grievance and appeal unit and the appeal was promptly processed. The timeframe for resolution of an insured appeal is shorter (30 calendar days) than the timeframe for resolution of a provider dispute (45 working days). Because the appeal was initially misfiled by the provider, the time allowed to process the insured appeal had elapsed when it reached the correct department. In this instance, the provider contributed to the delay in processing the insured appeal. As a remedial measure, the Company has taken steps to more efficiently identify misdirected mail. In addition, the PDR team has significantly reduced its overall aging since the audit period form 45 days to about 30 days. As such, the Company’s ability to re-route misdirected mail in a timely manner has improved. Additionally, the Company is partnering with a new mail activation vendor to identify misdirected mail as it is received. Although this process is ongoing, the Company expects to have the ability to pre-sort portions of its mail this year. The pre-sort process will include identifying insured appeals that were inadvertently submitted to the PDR address.

In the second instance, the Company requested additional information from the air ambulance provider, but the claim processor failed to make the correct entry for a contested claim in the Company’s system so the claim appeared to other processors and auditors to be finalized. Once the Company received the additional information the claim was paid within eight days. The Company provided feedback and refresher training to the processor involved with the contested claim in January 2017.

The Company states there was no violation of CCR §2695.7(d) in either instance

as the Company conducted a thorough, fair and objective investigation of the claim and did not persist in seeking information not reasonably required for payment of the claim. Additionally, the Company states an isolated error in processing an appeal or a claim does not constitute a violation of CIC §790.03(h)(3). (See also the Company’s response to the CIC §790.03 allegation). 10. In two instances, the Company failed to provide written notice of the need for additional time every 30 calendar days to the claimant. The Department alleges these acts are in violation of CCR §2695.11(d) and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated §790.03(h)(3). (See also the Company’s response to the CIC §790.03

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allegation). In the first instance, the Company provided a delay letter to both the insured and provider on June 12, 2015; however, a second letter was not issued to the member between July 7, 2015 and August 28, 2015. The Company maintains reasonable standards for the prompt investigation and processing of claims and did so in this instance. In the second instance, the Company did not send a delay letter to the insured. As a remedial measure for both claims, the appropriate claims staff were trained on the requirements of this regulation and all internal policies in January 2017. The Company now auto-generates letters to insureds and providers when a claim has aged from the receipt date to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If the report indicates the system failed to send a 30-day delay letter, a manually generated letter is promptly sent to the insured and/or provider, as applicable. 11. In two instances, the Company failed to provide written notice of the need for additional time every 30 calendar days to the provider. The Department alleges these acts are in violation of CCR §2695.11(d) and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated §790.03(h)(3). (See also the Company’s response to the CIC §790.03 allegation). In the first instance, the Company provided a delay letter to both the insured and provider on June 12, 2015; however, a second letter was not issued to the provider between July 7, 2015 and August 28, 2015. The Company maintains reasonable standards for the prompt investigation and processing of claims and did so in this instance. In the second instance, the Company did not send a delay letter to the provider. As a remedial measure for both claims, the appropriate claims staff were trained on the requirements of this regulation and all internal policies in January 2017. The Company now auto-generates letters to insureds and providers when a claim has aged from the receipt date to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If the report indicates the system failed to send a 30-day delay letter, a manually generated letter is promptly sent to the insured and/or provider, as applicable. 12. In one instance, the Company failed to notify the provider in writing, within 30 working days after receipt of the claim, that the claim was contested. The Department alleges this act is in violation of CIC §10123.13(a) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: The Company agrees it did not send a notice contesting the claim to the provider. However, the Company disputes the characterization of the single alleged violation of CIC §10123.13(a) as constituting an unfair practice under CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation. As a remedial measure, the appropriate claims staff were trained on the requirements of this Insurance Code provision and all internal policies in January 2017. The Company now auto-generates letters to insureds and

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providers when a claim has aged from the receipt date to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If that report indicates the system failed to send a 30-day delay letter, a manually generated letter will be promptly sent to the insured and/or provider, as applicable. 13. In one instance, the Company requested information that is not reasonably necessary to determine liability for payment of a claim. Specifically, the Company requested information on lab reports when the submitted claim was for medical equipment. The Department alleges this act is in violation of CIC §10123.131(b) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: The Company acknowledges the wrong form was sent to the provider as a result of human error. However, this did not result in the Company’s failing to implement reasonable standards for the prompt investigation and processing of claims because, at the time of processing, additional records were, in fact, required to be reviewed pursuant to the Company’s policy. Additionally, the Company disputes the characterization of the single alleged violation of CIC §10123.131(b) as constituting unfair practices under CIC §790.03(h)(3). (See also the Company’s response to the CIC §790.03 allegation). To ensure future compliance, in January 2017, the Company provided additional training to the claims processor on the correct processing of claims and applicable processing guidelines. 14. In one instance, the Company failed to resolve each provider dispute consistent with applicable law and issue a written determination within 45 working days after the date of receipt of the provider dispute. Specifically, the Company resolved the provider dispute in 230 days. The Department alleges this act is in violation of CIC §10123.137(c) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states that the provider’s communication was originally misrouted as a result of human error. Consequently, the Company did not follow up as it would for an acknowledged provider dispute. When the communication was correctly routed to Provider Dispute Resolution (PDR) team, the dispute was resolved within two days. The Company disputes the characterization of this single alleged violation of CIC §10123.137(c) as an unfair practice under CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation. As a remedial measure, the Company has taken steps to more efficiently identify misdirected mail. The Company is partnering with a new mail activation vendor to identify misdirected mail as it is received. Although this process is ongoing, the Company expects to have the ability to pre-sort a portion of its mail this year. The pre-sort process will include identifying provider appeals that were inadvertently identified as provider correspondence. 15. In one instance, the Company failed to notify the insured in writing, within 30 working days after receipt of the emergency services claim, that the claim was

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contested. Specifically, the Company received the claim on November 6, 2015 and requested additional information on December 28, 2015. The Department alleges this act is in violation of CIC §10123.147(a) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: In this instance, despite the delay in notification, the Company reasonably required additional information to process the claim as requested by the December 28, 2015 letters to the insured and provider. Once the additional information was received on February 29, 2016, the claim was processed and paid within eight days, in compliance with the 30 working day window provided by CIC §10123.147(a). The Company disputes the characterization of the single alleged violation of CIC §10123.147(a) as constituting unfair practices under CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation. As a remedial measure, the appropriate claims staff were trained on the requirements of this Insurance Code provision and all internal policies in January 2017. The Company now auto-generates letters to insureds and providers when a claim has aged from the receipt date to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If that report indicates the system failed to send a 30-day delay letter, a manually generated letter will be promptly sent to the insured or provider, as applicable. 16. In one instance, the Company failed to notify the provider in writing, within 30 working days after receipt of the emergency services claim, that the claim was contested. Specifically, the Company received the claim on November 06, 2015 and requested additional information on December 28, 2015. The Department alleges this act is in violation of CIC §10123.147(a) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: In this instance, the claim was not “complete” because the Company reasonably required additional information to process the claim as requested by the December 28, 2015 letter to the insured and provider. Once the additional information was received on February 29, 2016, the claim was processed and paid within eight days, in compliance with the 30 working day window provided by the CIC §10123.147(a). Further, the Company disputes the characterization of the single alleged violation of CIC §10123.147(a) as constituting unfair practices under CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation. As a remedial measure, the appropriate claims staff were trained on the requirements of this Insurance Code provision and all internal policies in January 2017. The Company now auto-generates letters to insureds and providers when a claim has aged from the receipt date to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If that report indicates the system failed to send a 30-day delay letter, a manually generated letter will be promptly sent to the insured or provider, as applicable.

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17. In one instance, the Company failed to pay the greater of fifteen dollars ($15) per year or interest at the rate of 10 percent per annum beginning with the first calendar day after 30 working days for emergency services on an uncontested claim. Specifically, the Company paid interest in the amount of $2.15; however, the minimum interest for payment of emergency services after 30 working days is $15.00. The Department alleges this act is in violation of CIC §10123.147(b) and is an unfair practice under CIC §790.03(h)(5). Summary of the Company’s Response: In processing the dispute resolution, the Company increased the payment amount to usual, customary and reasonable rates for emergency services from non-participating providers. However, in this isolated instance, the claim was not reclassified as an emergency claim, and therefore the system did not apply the correct interest amount of $15.00 applicable to emergency claims. As a remedial measure, the Company issued an interest payment in the amount of $12.85. The Company disputes the characterization of the single alleged violation of CIC §10123.147(b) as constituting unfair practices under CIC §790.03(h)(5) for the reasons stated in that Company’s response to the CIC §790.03 allegation. 18. In one instance, the Company failed to pay for inpatient hospital care provided within 96 hours following a delivery by caesarean section. Specifically, the Company considered benefits for the mother, but failed to consider benefits within this time period for a newborn. The Department alleges this act is in violation of CIC §10123.87 and is an unfair practice under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the single alleged violation of CIC §10123.87 as constituting an unfair practice under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC § 90.03 allegation. In this instance, an error occurred when the Company failed to cover professional benefits for the newborn for 96 hours following delivery by caesarean section. It is not the Company’s policy to restrict coverage for inpatient hospital care for newborns for a period of 96 hours following a delivery by caesarean section. Typically, the hospital sends one combined bill for the mother and the newborn. In this instance the infant’s professional charges were billed separately. The claim was paid and adjusted on appeal. As of October 31, 2018, the Company completed training that explained coverage for a newborn when the newborn’s care is billed separately. 19. In one instance, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. Specifically, the Company failed to pay the correct contracted rate for the outpatient surgical services resulting in an underpayment. The Department alleges this act is in violation of CCR §2695.7(g) and is an unfair practice under CIC §790.03(h)(5).

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Summary of the Company’s Response: The Company states the claim was priced using the lower outpatient surgical services rate. While the revenue codes on the claim indicated an outpatient surgical service, these revenue codes must be billed with certain CPT codes. In this instance, the claim was billed with incorrect CPT codes. Therefore, the claims processor did not appreciate the nature of the services and underpaid the claim. Upon appeal, the Company acknowledged the correct pricing under the contract and adjusted the allowed charges accordingly. This was an individual and inadvertent error by the processor and not an error with the process itself. The provider’s use of incorrect CPT codes contributed to the problem. To ensure future compliance, the Company provided additional training to the claims processor on the correct processing of claims and applicable processing guidelines in January 2017. Also, the Company disputes the characterization of a single alleged violation of CCR §2695.7(g) as constituting unfair practices under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. 20. In one instance, the Company failed, upon contesting a claim under CIC §10123.13, to affirm or deny the claim within 30 calendar days from the original notification. Specifically, the Company received the requested medical records on July 07, 2015 and denied the claim on August 28, 2015. The Department alleges this act is in violation of CCR §2695.11(d) and is an unfair practice under CIC §790.03(h)(4). Summary of the Company’s Response: The Company does not agree a single instance of delay constitutes an unfair practice under CIC §790.03(h)(4). (See also the Company’s response to the CIC §790.03 allegation). The Company acknowledges the claim was not affirmed or denied within 30 calendar days of receipt of the requested medical records, and a delay letter indicating that additional time was needed for review was not sent. The Company also acknowledges the claim was ultimately denied as medical necessity was not established. As a remedial measure, the appropriate claims staff were trained on the requirements of this Insurance Code provision and all internal policies in January 2017. The Company now auto-generates letters to insureds and providers when a claim has aged from the receipt date (or the receipt date of medical records) to note that additional time is needed for review and/or for additional information requests. In addition, a pending claims report is produced and reviewed daily. If that report indicates the system failed to send a 30-day delay letter, a manually generated letter will be promptly sent to the insured or provider, as applicable. Finally, we respectfully request that this alleged violation not be double-counted as an additional alleged violation in any of the “Electronic Review” calculations in paragraphs 38 - 43 hereof. 21. In one instance, the Company failed to respond to communications within 15 calendar days. Specifically, the provider submitted an appeal on behalf of the insured and the Company acknowledged the appeal 63 days later. The Department alleges this act is in violation of CCR §2695.5(b) and is an unfair practice under CIC §790.03(h)(2).

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Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(2). (See also the Company’s response to the CIC §790.03 allegation). The insured grievance was incorrectly sent by the provider to the Company’s Provider Dispute Resolution department (PDR). Upon review by the PDR department, the grievance was redirected to the member/insured appeals department. Once received by member/insured appeals, it was acknowledged on the same day. The timeframe for resolution of an insured appeal is shorter (30 calendar days) than the timeframe for resolution of a provider dispute (45 working days). Because the appeal was initially misfiled by the provider, the time allowed to process the insured appeal had elapsed by the time it reached the correct department. In this instance, the provider contributed to the delay in processing the insured appeal. As a remedial measure, the Company has taken steps to more efficiently identify misdirected mail. The PDR team has significantly reduced its overall aging since the time related to this audit. Aging is currently at about 30 days as opposed to 45 days during the audit period. As such, the Company’s ability to re-route misdirected mail in a timely manner has improved. Additionally, the Company is partnering with a new mail activation vendor to identify misdirected mail as it is received. Although this process is ongoing, the Company expects to have the ability to pre-sort portions of its mail by the end of 2018. The pre-sort process will include identifying insured appeals that were inadvertently submitted to the PDR address.

ACCIDENT AND DISABILITY (HEALTH) – TARGETED MENTAL HEALTH FILE REVIEW 22. In 15 instances, the Company failed to include in its notice of a contested or denied claim that the provider may seek a review by the Department. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(3) (See also the Company’s response to the CIC §790.03 allegation). The Company acknowledges that notice of the right to seek Departmental review of a denied or contested claim was not included in provider EOBs. The Company electronically implemented system updates for full compliance with the provider notice requirements on June 23, 2015. 23. In 11 instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. The Department alleges these acts are in violation of CIC §790.03(h)(5). 23(a). BSL contracts with Human Affairs International of California (referred to as Magellan or BSL’s Mental Health Service Administrator) for benefit administration of in-network mental health services. Providers are instructed to submit claims directly to Magellan no later than 90 days after the date of service for which claims are being

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made from a contracted professional provider. In two instances, the providers submitted the bills to BSL in lieu of Magellan. As a result, the claims were denied with an EOB message to submit the bill to Magellan. Because the providers did not resubmit the bills to Magellan within the 90-day requirement, Magellan denied the claims for untimely filing. As a result of an appeal in one of these two instances, BSL overturned the denial based on the provider’s submission of the BSL EOB supporting timely filing. Summary of the Company’s Response to 23(a): The Company states it does not agree it violated the law cited for the reasons below and in the Company’s response

to the CIC §790.03 allegation. In both instances, the claims were received by Magellan

via Electronic Data Interchange. The claims did not contain information that would indicate to Magellan that the providers had previously submitted the claims to BSL. Had the providers subsequently submitted the claims to Magellan within 90 days of the date of BSL’s notification to the providers along with a copy of BSL’s EOB, the claims would have been eligible for payment. In one instance, the provider had two opportunities to timely file the claim with Magellan as agreed to in the provider’s contract. The first was within 90 days of the date of service; the second was within 90 days of BSL’s April 13, 2015 EOB notice of a misfiled claim. As the provider missed both deadlines, the claim was denied per contract terms. The Company states payment is not owed for this claim as it was not timely filed according to the provider’s contract with Magellan. The second claim was paid by Magellan upon appeal, at which time it became clear that the claim was initially misfiled with BSL. There is no violation of the statute in these instances; for the denied claim, the provider was notified that the claim was misfiled with BSL and should be filed with the Mental Health Service Administrator (“MHSA”). The MHSA, applied a 90-day timely filing requirement agreed to by the provider. In the second instance, the claim was paid by the MHSA on appeal. As a remedial measure, the Company has amended its EOB language to include a directive to the provider to include the BSL EOB when re-submitting a misfiled claim to Magellan for processing. Additionally, the Company will partner with Magellan to create a “Re-direct” process for Mental Health/Substance Use Disorder (MH/SUD) claims sent to the Company in error instead of being sent to the MHSA. This new “Re-direct” process will be in place by the end of February 2019. 23(b). In one instance, the claim was incorrectly denied on the basis that the service was excluded from coverage. Summary of the Company’s Response to 23(b): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company confirmed the claim was originally misfiled by the provider and denied incorrectly as a benefit exclusion. When functioning correctly, the claims system logic will identify misdirected MH/SUD claims and “stop” the claim for processor intervention. The claims processor will apply an EOB message that directs the provider to submit the claim to the MHSA. In transitioning from the Company’s existing system to a new claims system, a coding error occurred. As a result, the system did not recognize this claim as a mental health service, and the claim

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did not “stop.” The claim passed through the system and was denied. Testing of the new system confirms that the claim would now stop as it should, giving the claims processor the opportunity to apply the correct denial code and EOB messaging. In this particular case, there was a system error, unknown to the Company at the time and now resolved, that prevented the necessary processor intervention. When the error was discovered, the claim was paid. The Company’s general practice is to pay claims equitably according to plan benefits, to identify misdirected MH/SUD claims, and to instruct providers to submit the claim to the MHSA. 23(c). In one instance, the Company incorrectly denied the claim on the basis that coverage was not in effect on the service dates. Summary of the Company’s Response to 23(c): The Company states it does not agree it violated the law cited regarding this single instance for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company acknowledges that the claim for mental health services was wrongfully denied as a result of an error in posting eligibility information during the migration from the older claims system to a new claims system. The Company went through a system upgrade/migration which was completed in December 2015. In this instance, the denial error occurred because the Company’s MHSA (Magellan) did not know the eligibility information was incorrect. As a remedial measure, the Company issued payment in the amount of $699.55. As further remediation, and referred to herein as the “Eligibility Enhancements,” since the completion of the system upgrade/migration, the Company has instituted additional enhancements and partnered with a third-party vendor to ensure that electronic enrollment files load timely and accurately. Files are processed within 24 hours of being received and pending items are completed within three days. All manual enrollments are audited on the same day for accuracy, with any items sent back to group for clarification are tracked for resolution. Additionally, the Company has improved operational oversight by implementing an Operation Governance Team that reviews end-to-end processes and manages incidents. The Operation Governance Team includes a specialized analyst for insured enrollment and EDI who reviews changes and resolves issues as they arise. In addition, there is a dedicated incident management team that monitors and escalates system issues for appropriate resolution. 23(d). In one instance, the Company wrongfully denied mental health services based on a diagnosis of major depressive disorder. California Mental Health Parity Law [CIC §10144.5(d)(4)] requires coverage to be provided for the necessary treatment of major depressive disorder. Summary of the Company’s Response to 23(d): The Company states it does not agree it violated CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The MHSA based the denial on the primary diagnosis code. The insured was enrolled in a Mental Health Parity and Addiction Equity Act (MHPAEA) exempt plan that only provided full benefits for mental health treatment associated with the California parity diagnoses including Serious Mental

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Illness (SMI), Serious Emotional Disturbances of a Child (SED), and limited or no coverage for other non-parity MH/SUD diagnoses. The Company acknowledges payment liability as the secondary diagnosis was a California parity diagnosis. The individual claims processor denied the claim in error and the claim should have been paid. As a remedial measure, the Company issued payment in the amount of $98.54, including interest. There are no longer MHPAEA-exempt plans which would trigger this issue in the future. 23(e). In one instance, the Company wrongfully denied the claim based on the provider’s failure to submit medical records requested by the Company when medical records were not necessary to adjudicate the claim. Summary of the Company’s Response to 23(e): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company agrees the claim was wrongfully denied. Magellan’s internal claim system generates a weekly report which identifies claims awaiting medical records. This claim appeared on the report, and it was reviewed to determine whether or not medical records had been received. As the records were not received within the requested timeframe, the claim was processed and denied. In the course of its claim file review, Magellan reassessed the need for medical records to process a clinic visit and it was determined the records were not needed. As a remedial measure, the Company adjusted the claim and paid $277.18, including interest, once the error was discovered. On June 1, 2018, Magellan suspended the process of requesting medical records when prior authorization is required, but not obtained. 23(f). In one instance, the Company wrongfully denied mental health services for two of three dates of services, based on the insured’s lack of eligibility. The claim was paid for two dates of service upon notification from the insured that the claim was wrongfully denied. Summary of the Company’s Response to 23(f): The Company states it does not agree it violated CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company acknowledges it denied coverage in error for the two dates of services based upon eligibility. Magellan followed Company guidelines related to the handling of claims pended for eligibility verification; however, the information in the system was incorrect. Once the insured’s eligibility was subsequently confirmed by BSL, the claim was partially paid. The Company states this was an error in posting eligibility, which resulted from the system upgrade completed by the Company in December 2015. As remediation, the Company implemented the Eligibility Enhancements described in paragraph 23(c) above. The claim for the remaining date of services was correctly denied based on the insured’s voluntary termination of coverage. 23(g). In one instance, the Company wrongfully denied the claim for emergency services due to a major depressive disorder based on no prior authorization and the

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service was not covered as a mental health benefit under the plan. As this was emergency services and the diagnosis was for mental health, no prior authorization was required. Summary of the Company’s Response to 23(g): The Company states it does not agree it violated CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company agrees the initial denial was an error. The Company reminded Magellan on or about March 17, 2017, that under the insured’s policy, prior authorization is not required for an emergency admission. Magellan paid the claim with interest as noted in section 23(h) below. 23(h). In one instance, the Company wrongfully denied an emergency room admission for no prior authorization. Subsequently, the Company received a duplicate claim which was pended for medical records (to be received within 45 days) for a retrospective medical necessity review process. The Company’s internal reporting indicated medical records were not received timely; therefore, the claim was denied again. However, medical records were submitted within 45 days. Summary of the Company’s Response to 23(h): The Company states it does not agree it violated CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. When the claim was originally submitted, Magellan promptly adjudicated the claim and denied it for valid reasons: inpatient services were not prior authorized, and ER charges were the responsibility of BSL. However, soon after the processing of this claim, Magellan changed its policy on denials for failure to obtain prior authorization at the request of BSL. The new policy provides for a retrospective medical necessity review of the unauthorized services, with coverage contingent on a finding that the services were in fact medically necessary. Medical records are typically required. When the claim was submitted a second time, medical records were promptly requested for retrospective review due to the Company’s new policy. Although Magellan’s internal reporting indicated that medical records were not received within the required 45 days, the claim was denied in error as records were timely submitted. In this isolated instance, the claim was incorrectly denied, but subsequently adjusted and payment with interest was issued in the amount of $1,985.28 as a remedial measure. 23(i). In one instance, the Company denied the claim on the basis that the provider billed with invalid diagnosis codes. However, the diagnosis codes listed on the initial bill and the bill submitted as a result of the provider dispute were both valid codes. Summary of the Company’s Response to 23(i): The Company states it does not agree it violated CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. However, the Company acknowledges this finding. The diagnosis code loaded in the Magellan system was a generic code for “other unknown and unspecified cause of morbidity and mortality” and should have indicated to the claims processor that the claim was authorized for payment. The

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claims processor did not recognize the code as a payable code, so instead incorrectly denied the claim. As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference. 23(j). In one instance, the Company incorrectly denied the claim stating that the charges do not reflect the diagnosis for which an authorization was issued. However, the Company issued an authorization for the diagnosis codes and the services rendered. Summary of the Company’s Response to 23(j): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation. This denial was due to the mismatch between the actual diagnosis codes and the generic diagnosis code entered into the Magellan system. The claims processor should have recognized the generic code and cleared the claim for payment. The denial was an error due to the combination of the use of a generic diagnosis code and processor error. The Company agrees that payment was due on the claim. As a remedial measure, the claim was adjusted and $155.00 was applied to the insured’s deductible. As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference. 24. In eight instances, the Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. The Department alleges these acts are in violation of CIC §790.03(h)(1). 24(a). In four instances, the Company provided the insured and provider inaccurate information with regard to services provided by out-of-network providers at in-network rates. Summary of the Company’s Response to 24(a): The Company states it does not agree it violated CIC §790.03(h)(1) for the reasons stated in the Company’s response to the CIC §790.03 allegation. However, the Company acknowledges that insured and provider correspondence should have more clearly stated the issue with regard to services provided by out-of-network providers at in-network rates. There is a general Company guideline that insured and provider correspondence should be clear and accurate and this guideline was not consistently followed in these instances. It is

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not the Company’s practice in regard to appeals and grievances to misrepresent to claimants pertinent facts or insurance policy provisions relating to their coverage. These were errors and there was no intentional misrepresentation. As a remedial measure, the Company conducted refresher training with staff in May 2017 to improve clarity and consistency of appeal letters and the Company revised its template letters. Additionally, an internal monitoring process of appeal letters was instituted mid-2016. 24(b). In three instances, the Company provided an incorrect denial message on the EOB. Summary of the Company’s Response to 24(b): The Company states it does not agree it violated CIC §790.03(h)(1) for the reasons stated in the Company’s response to the CIC §790.03 allegation. However, the Company agrees it did not utilize an accurate remark code in these instances. The use of an inaccurate denial message was an error made by individual claims processors. As a remedial measure, Magellan developed training materials to assist the claims specialists in the proper use of denial codes. In addition, the MHSA provided refresher training to the claims processing staff and will continue to monitor the process during its daily Quality Auditing process. 24(c). In one instance, the Company informed the insured they were not eligible for benefits under the plan. However, the insured was eligible for benefits. Summary of the Company’s Response to 24(c): The Company states it does not agree it violated CIC §790.03(h)(1) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The insured’s Individual Family Plan coverage was mistakenly categorized as duplicate coverage. It is not the Company’s general business practice to retroactively terminate coverage or to misrepresent provisions of an insured’s coverage. The error in this instance occurred during the Company’s system upgrade which was completed in December 2015. As a remedial measure, since the completion of the system migration in December 2015, the Company has implemented the Eligibility Enhancements described in paragraph 23(c), above. 25. In seven instances, the Company failed to include in its notice of a denied claim to the insured, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(13). 25(a). In four instances, the Company did not provide an explanation for the partial denial of these claims. In three of these instances, the EOBs state the following: “The allowed amount for this claim is based on the provisions of the patient’s plan.” In one of these instances, the EOB contains no remarks at all. Summary of the Company’s Response to 25(a): The Company disagrees the claims were partially denied in all identified instances. In three of these instances, the

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Company states its contract for payment of out-of-network (OON) benefits is set forth in the policy and defined in the Certificate of Insurance (COI) as 50% of the allowed amount, subject to deductible, and copayment or coinsurance. In the one instance in which no remarks were on the EOB, the claim was paid at the OON allowed amount and this was applied to the deductible. Accordingly, the benefits were paid in full pursuant to the insured’s benefit plan. The Company’s nonpayment of amounts in excess of the benefit does not constitute a partial denial as a matter of law. Even though CIC §10123.13(a) only applies to contested or denied claims and not in the instances described above, the requirement to provide a specific explanation has been met. Nonetheless, because these claims were neither contested nor denied, no explanation is required. Therefore, there can be no violation of these statutes cited in all instances. However, despite the Company’s respectful disagreement with the CDI’s characterization of this issue, as noted in the Summary of the Company’s Response to 1(b), above, revisions have been made to EOB messages to ensure that more detailed information is displayed when the claim payment amount differs from the claim submission amount. 25(b). In two instances, the Company failed to explain to the insured the specific reason(s) it determined the services were excluded under the plan. In both instances, the EOBs state the following: “This service is specifically excluded from coverage under the subscriber’s Blue Shield plan.” In one of these two instances, although the insured’s plan did not include a benefit for the treatment of substance use disorder, the EOB did not identify that the treatment was in fact for a substance use disorder. The EOB identified the treatment as “Out PT Care” (outpatient care). Summary of the Company’s Response to 25(b): The Company states it does not agree it violated CIC §790.03(h)(13) for the reasons stated in the Company’s response to the CIC §790.03 allegation. In the first instance, the provider incorrectly filed the claim with BSL as opposed to the MHSA. The Company explains that when functioning correctly, the claims system logic will identify misdirected MH/SUD claims and “stop” the claim for processor intervention. In that event, the claims processor would then apply an EOB message that directs the provider to submit the claim to the MHSA. In transitioning from the Company’s existing system to a new claims system, a coding error occurred. As a result, the system did not recognize this claim as a claim for mental health services, and the claim did not “stop.” The claim passed through the system and was denied. Testing of the new system confirms that the claim would now “stop” as it should, giving the claims processor the opportunity to apply the correct denial code and EOB messaging. In this particular case, there was a system error, unknown to the Company at that time, which has now been resolved. When the error was discovered, the claim was paid. The Company’s general practice is to pay claims equitably according to plan benefits, to identify misdirected MH/SUD claims, and to instruct providers to submit the claim to the MHSA. As a remedial measure, the Company amended its EOB language to include a directive to the provider to include the BSL EOB when re-submitting a misfiled claim to the MHSA for processing. Additionally, the Company will partner with the MHSA to create a “Re-direct” process for

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MH/SUD claims sent to the Company in error instead of being sent to the MHSA. This new “Re-direct” process will serve to enhance the current EOB process and will be in place by the end of February 2019.

In the second instance, the insured had a covered inpatient stay for alcohol detoxification, despite the general exclusion for substance use disorder (SUD) services. The Company covers acute detoxification under the medical benefit, so the SUD exclusion was not applied. The SUD exclusion did apply to the follow-up office visit(s) (outpatient service) and the service was appropriately denied payment under the SUD benefit exclusion. As such, the Company asserts that a coverage exclusion was the specific reason for a denial, and there is no violation of the statute.

The certificate of insurance informs the insured of facts relevant to coverage -- one specific fact is that there is no coverage for SUD services. The EOB provided to the insured identified the SUD service provider and stated this fact, therefore complies with the requirement to provide the factual or legal basis for the denial. The EOB for the SUD provider’s outpatient services stated: “This service is specifically excluded from coverage under the subscriber’s Blue Shield plan.” The benefit design that excludes coverage for SUD services is unique to Individual grandfathered plans, and very few active policies remain. As a result, this particular EOB message is seldom utilized. The Company respectfully submits that the subject disclosure satisfies both the letter and the spirit of CIC §10123.13 by providing the policyholder the factual basis for the denial that the outpatient services rendered to the insured by the SUD provider were not a covered benefit. Nonetheless, the Company has instructed the MHSA to provide a more complete description of the basis for the denial. For a denial such as this one, the EOB will now state that the treatment was for an SUD service, and such services are excluded under the plan. 25(c). In one instance, the Company failed to provide to the insured the specific reason(s) the service was not covered for the diagnosis under the plan. The EOB provided the insured with the following denial message: “The service rendered is not covered for this diagnosis under the plan. Please refer to insured materials for benefit guidelines. If there is information which documents that the services rendered for this diagnosis meet the benefit plan requirements for reimbursable mental health or substance abuse services, please submit that information as outlined in the appeal section of this notice.” Summary of the Company’s Response to 25(c): The Company states it does not agree it violated CIC §10123.13(a) or CIC §790.03(h)(13). The insured’s benefit plan (See also the Company’s response to the CIC §790.03 allegation) provided full coverage for treatment of Severe Mental Illness (SMI) and Serious Emotional Disturbances of a child (SED), and limited or no coverage for substance use disorder (SUD) diagnoses and other non-parity mental health diagnoses. Any small group or individual plans with such limited coverage for non-CA parity diagnoses were discontinued as of January 1, 2015. Because the primary diagnosis presented on the

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claim was not an SMI or SED, but rather a non-parity diagnosis, Magellan advised the insured that the services were not covered for their particular diagnosis under the plan. The certificate of insurance informs the insured of facts relevant to coverage specifically there is limited or no coverage for non- parity diagnoses. The EOB provided to the insured stated that fact and, therefore, complied with the requirement to provide the factual or legal basis for the denial. Relevant EOB content states: “The service rendered is not covered for this diagnosis under the plan. Please refer to insured materials for benefit guidelines.” The Company also states the statute does not require that Certificate of Insurance provisions be cited in the EOB. Because the Department found the denial code vague, as a remedial measure, Magellan suspended use of this particular denial code as of April 3, 2018. 26. In six instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. The Department alleges these acts are in violation of CIC §790.03(h)(3). 26(a). In two instances, prior to March of 2016, the Company failed to implement a process to ensure accurate accounting of insured cost sharing accumulations between Magellan and BSL resulting in the miscalculation of yearly maximum copayments/coinsurance, insured’s deductibles, and out-of-pocket maximum (OOPM) amounts. Summary of the Company’s Response to 26(a): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation. Prior to March of 2016, when the process became automated, the Company utilized a manual process to accumulate yearly deductible and OOPM amounts. At that time, the BSL and Magellan claims systems did not automatically communicate with each system. Accordingly, Magellan would provide mental health claim deductible and OOPM accumulation amounts daily to BSL via an electronic accumulator file transfer. That information would then be loaded into the BSL claim systems and posted to the appropriate cost-share accumulator. This process was automated in March 2016, thus eliminating these errors (hereinafter referred to as the “March 2016 Cost Share Automation”). 26(b). In one instance, the Company did not follow its guidelines and delayed processing of a procedure in order to amend the denial reason. Once confirmation of eligibility was established as a result of a phone call from the insured, the Company adjusted and paid the claim. The Company did not include one of the services provided because this service was not subsequently denied for the correct reason. The provider submitted an appeal for the payment of the service. As a result of this appeal, the Company denied this service and the service remained denied based on insured eligibility.

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Summary of the Company’s Response 26(b): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation; however, the Company acknowledges that Magellan should have issued a corrected denial for the procedure in question following clarification of eligibility. In this particular instance, due to processor error, Magellan did not promptly correct the denial reason for the procedure explaining that the denial was based on contract exclusion, not eligibility. Nonetheless, payment was appropriately withheld and the delay did not impact the outcome for the insured or the provider. Magellan used this example for refresher training with the Claim Resolution team and reinforced that each claim line should be thoroughly reviewed before completing an adjustment in line with Company procedures. As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference. 26(c). In one instance, prior to February 2015, Magellan issued denials based on the provider’s failure to obtain prior authorization. This procedure was inconsistent with BSL’s handling of claims that involved prior authorization. Summary of the Company’s Response 26(c): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation; however, the Company acknowledges the error. Magellan denied the claims for no prior authorization and because they were not a covered mental health benefit, respectively. In this particular case, Magellan’s initial denial was correct based on existent policies on prior authorization. Magellan changed its policy on denial for failure to obtain prior authorization in February 2015 at the request of BSL. The new policy provides for a retrospective medical necessity review of the unauthorized services, with coverage contingent on a finding that the services were in fact medically necessary. 26(d). In one instance, Magellan processed billed charges inconsistent with BSL billing guidelines. Summary of the Company’s Response 26(d): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC § 790.03 Allegation. Magellan combined charges for two separate revenue codes into one claim line because both items required medical records. In this particular case, Magellan’s initial denial was correct based on existent policies and Magellan’s subsequent request for medical records to perform a retrospective medical necessity review was also reasonable. At the request of BSL, Magellan discontinued the business practice of combining revenue codes when requesting medical records. As a

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remedial measure, effective July 5, 2017, internal workflows were revised to instruct claims processors accordingly. 26(e). In one instance, the Company did not follow its guideline in providing the relevant section of the insured’s Certificate of Insurance (COI) when responding to an insured appeal. Specifically, the Company erroneously provided the insured with a COI for a group policy when the insured had purchased an individual and family plan. Summary of the Company’s Response 26(e): The Company states it does not agree it violated the law cited for the reasons stated in the Company’s response to the CIC §790.03 allegation; however, the Company acknowledges it did not follow its guidelines due to an error by the appeal coordinator. As this was an isolated error by the appeal coordinator, the Company provided refresher training to the coordinator at or around the date that the error is discovered.

27. In six instances, the Company failed to include in its notice of a denied claim to the provider, the portion of the claim that was denied, and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for denying the claim. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(13). 27(a). In two instances, the Company did not provide an explanation for the partial denial of these claims to an out-of-network provider. The EOBs state the following: “The allowed amount for this claim is based on the provisions of the patient’s plan.” Summary of the Company’s Response to 27(a): The Company disagrees the claims were partially denied in both instances as payment of the policy’s out-of-network (OON) benefit amount is not a partial denial as a matter of law. The Company states its contract for payment of OON benefits is with the insured and is defined in the COI as 50% of the allowed amount, subject to deductible, and copayment or coinsurance. Accordingly, the benefits were paid in full pursuant to the insured’s benefit plan. The statutes cited only apply to contested or denied claims. Because these claims were neither contested nor denied, no explanation is required and CIC §10123.13(a) and CIC §790.03(h)(13) are inapplicable. Therefore, there can be no violation of these statutes cited in either instance. Notwithstanding the foregoing, the EOB did explain the basis for the subject payment; “The allowed amount for this claim is based on the provisions of the patient’s plan.” However, despite the Company’s respectful disagreement with the CDI’s characterization of this issue, as noted in the Summary of the Company’s Response to 1(b), above, revisions have been made to EOB messages to ensure that more detailed information is displayed when the claim payment amount differs from the claim submission amount. 27(b). In one instance, the Company failed to explain to the provider the specific reason(s) it determined the services were excluded under the plan. The EOB to the

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provider states the following: “This service is specifically excluded from coverage under the subscriber's Blue Shield plan.” Summary of the Company’s Response to 27(b): The Company states it does not agree it violated CIC §790.03(h)(13) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company further states the claim should have been “stopped” and manually denied with an EOB message to the provider explaining that the claim was misfiled and instructing the provider to send the claim to the MHSA. Due to a system error, the claim was not recognized as a mental health claim and the claim did not “stop”. Testing of the new system confirms that the claim would stop now, as it should, giving the claims processor the opportunity to apply the correct denial code and EOB messaging. In this particular case, there was a system error, unknown to the Company at that time, which has now been resolved, that prevented the necessary processor intervention. When the error was discovered, the claim was correctly adjudicated. The Company’s general practice is to pay claims equitably according to plan benefits, to identify misdirected MH/SUD claims, and to instruct providers to submit the claim to the MHSA. 27(c). In one instance, the Company failed to explain to the provider the specific reason(s) it determined the service was not covered for the diagnosis under the plan. The EOB to the provider states the following: “The service rendered is not covered for this diagnosis under the plan. Please refer to insured materials for benefit guidelines. If there is information which documents that the services rendered for this diagnosis meet the benefit plan requirements for reimbursable mental health or substance abuse services, please submit that information as outlined in the appeal section of this notice.” Summary of the Company’s Response to 27(c): The Company states it does not agree it violated CIC §790.03(h)(13). The insured was enrolled in a Mental Health Parity and Addiction Equity Act (MHPAEA)-exempt plan that provided full benefits for mental health treatment associated with the California parity diagnosis including Serious Mental Illness (SMI), Serious Emotional Disturbances (SED), and limited or no coverage for non- parity mental health diagnoses and substance use disorder diagnoses. Any small group or individual plans with such limited coverage for non-CA parity diagnoses were discontinued as of January 1, 2015. Because the primary diagnosis presented on the claim was not an SMI or SED CA parity diagnosis, but rather a non-parity diagnosis, the provider EOB stated that fact and, therefore, complied with the requirement to provide the factual or legal basis for the denial. Relevant EOB content states: “The service rendered is not covered for this diagnosis under the plan.” The Company also states the statute does not require that Certificate of Insurance provisions be cited in the EOB. However, because the Department found the denial code vague, as a remedial measure, Magellan suspended use of this particular denial code as of April 3, 2018. 27(d). In one instance, the Company failed to send a denial notice to the provider.

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Summary of the Company’s Response to 27(d): The Company states it does not agree it violated CIC §790.03(h)(13) for the reasons stated in the Company’s response to the CIC §790.03 allegation; however, the Company agrees it did not send a denial notice to the provider. When the Company’s new claims system was initially configured, some EOBs to the provider for out-of-network non-facility claims were not automatically generated. As an interim measure, the Company had a manual process for creating an EOB, however, the claims processor erred in not creating a manual EOB in this instance. As per the Systems Remediation Plan described in the Company’s response to paragraph 1(a), above, the Company resolved and remediated this problem in March of 2016 and provider EOBs are now issued automatically for this type of claim without processor intervention. 27(e). In one instance, the EOB sent to the provider failed to include a reason for the denial. Summary of the Company’s Response to 27(e): The Company acknowledges there was no denial reason provided on the EOB due to a system error. The logical explanation is that these were mental health services, and claims should be filed with Magellan. The Company submits that it does not agree it violated CIC §790.03(h)(13) for the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company resolved and remediated this issue pursuant to the Systems Remediation Plan described in the Company’s response to paragraph 1(a) above. 28. In four instances, the Company failed to conduct business in its own name. The Department alleges these acts are in violation of CIC §880 and are unfair practices under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation. Moreover, such business name omission is not a “[f]ailure to adopt and implement reasonable standards for the prompt investigation and processing of claims under insurance policies.” Magellan, in its capacity as BSL’s MHSA, includes BSL’s name in both insured and provider EOBs. However, the particular provider dispute letter referenced by the Department did not bear BSL’s name as Magellan also has a contractual relationship with BSL’s affiliate, in its capacity as a Department of Managed Health Care (DMHC) licensed health plan. The Company agrees that when acting as BSL’s MHSA, Magellan should identify BSL as the insurer. As a remedial measure, as of May 17, 2017, Magellan added BSL’s name and logo to Magellan-handled documentation, including provider dispute letters referencing a claim for an enrollee of CDI-regulated plans. 29. In three instances, the Company failed to conduct and diligently pursue a thorough, fair and objective investigation. The Department alleges these acts are in violation of CCR §2695.7(d) and are unfair practices under CIC §790.03(h)(3).

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29(a). In one instance, the insured called the Company to obtain a claim summary to determine their out-of-pocket deductible and determine the date their deductible had been met. For a period of 106 days, no claim activity was documented until a follow-up call by the insured. The claim was not adjusted for an additional 148 days. Summary of the Company’s Response to 29(a): The Company states it does not agree it violated CIC §790.03(h)(3) for the reasons stated in the Company’s response to the CIC §790.03 allegation; however, the Company acknowledges time delays. The Company conducted a full audit of the 2015 cost share accumulations for its individual and family plans and further adjusted claims based upon those audit results. This issue occurred during the time that cost share accumulations between Magellan and the Company were manually processed and remedial measures were addressed in the March 2016 Cost Share Automation process described above. In addition, BSL has inventory controls in place to further facilitate the timely processing of claims and, as of Spring 2018, has a new inventory management system in place to enhance that process. 29(b). In one instance, as a result of not fully investigating the claims, the claims processor provided an incorrect denial message. The Company did not correct the error for 381 days. Summary of the Company’s Response to 29(b): The Company states it does not agree it violated CIC §790.03(h)(3) regarding this one instance for the reasons stated in the Company’s Response to the CIC §790.03 allegation. However, the Company acknowledges the claims processor did not fully investigate the claim resulting in an incorrect application of the duplicate denial code message. As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference. 29(c). In one instance, the Company failed to request medical records to determine if medical treatment was medically necessary. Summary of the Company’s Response to 29(c): The Company states it does not agree it violated CIC §790.03(h)(3). (See also the Company’s response to the CIC §790.03 allegation). The claims processor did not request medical records because the hospital admission had been previously considered for Utilization Management and voided. However, the Company acknowledges medical records should have been requested from the facility when the claim was received. As a result, BSL contacted the facility on March 2, 2017 and requested records for medical necessity review of the

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admission. Following receipt of the requested medical records, the claim was paid on March 15, 2017 in the amount of $24,470. 30. In three instances, the Company failed to reimburse claims as soon as practical, but no later than 30 working days after receipt of the claim, or after receipt of all information necessary to determine payer liability. The Department alleges these acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company states it does not agree it violated CIC § 790.03(h)(5) in these three instances based upon the reasons stated in the Company’s Response to the CIC §790.03 allegation. In two instances, although the Company ultimately paid the claim with interest, an isolated human data entry error caused the claim to be denied. Once the provider brought the error to the Company’s (Magellan’s) attention on October 2, 2015, the error was corrected and the claim was paid on October 6, 2015, within three working days and with interest calculated in accordance with CIC §§10123.13(b) or (c). As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference.

In the remaining instance, the Company acknowledges the settlement of the claim occurred beyond the 30-day time frame. The time delays were due to manual processing of mental health cost share accumulations and migration of enrollment from the older claims system to the new claims system. Remedial measures are addressed in the March 2016 Cost Share Automation process described above. Payment was issued with interest as described in item 33 below. 31. In two instances, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. In the first instance, claims were underpaid as a result of the lack of communication between BSL and MHSA with respect to out-of-pocket maximums and deductibles. As a result of the insured’s phone call to address the out-of-pocket costs, the Company conducted a full audit of 2015 cost share accumulations and paid claims including interest that were owed. In the second instance, the insured’s deductible had been satisfied for the policy period and the Company applied the allowed amount toward the deductible resulting in an underpayment of the claim. The Department alleges these acts are in violation of CCR §2695.7(g) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company states it does not agree it violated §790.03(h)(5) in either instance. (See also the Company’s response to the CIC §790.03 allegation). In the first instance, the Company agrees the claim was

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underpaid by incorrectly applying the allowed amount to the deductible when the deductible had been satisfied. This issue occurred during the time that Magellan’s cost share accumulation data was manually processed and remedial measures are addressed in the March 2016 Cost Share Automation process described above. In the second instance, although the allowed amount was initially applied to the deductible in error, when the insured advised that the deductible had been satisfied, accumulations were confirmed and the claim was promptly adjusted for payment to the provider in the amount of $431.29 (professional fees plus interest). The Company also conducted an audit of the insured’s deductible and OOPM accumulations for 2015 and issued seven additional payments, including interest, totaling $2,960.65. 32. In one instance, the Company failed to notify the provider in writing, within 30 working days after receipt of the claim, that the claim was denied. The Company failed to notify the provider in writing that the claim was partially denied. The Department alleges this act is in violation of CIC §10123.13(a) and is an unfair practice under CIC §790.03(h)(13). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(13) in this instance based on the reasons stated in the Company’s response to the CIC §790.03 allegation. The Company acknowledges it did not send a denial notice to the provider. When the Company’s new claims system was initially configured, some provider EOBs for out-of-network non-facility claims were not automatically generated. As an interim measure, the Company had a manual process for creating an EOB, however in this instance, the claims processor erred in not creating a manual EOB. The Company resolved the system problem in March of 2016, and the claims system is now programmed to issue OON non-facility provider EOBs without processor intervention, so the claims process is no longer susceptible to this type of error. The system improvement also allowed for more targeted monitoring of EOB output to ensure that it is correct. In addition, processor feedback and training was provided in January 2017 on the manual EOB process, should that be required. Please also see the Systems Remediation Plan described in the Company’s response to paragraph 1(a), above. 33. In one instance, the Company failed to pay interest on an uncontested claim after 30 working days. The Department alleges this act is in violation of CIC §10123.13(b) and is an unfair practice under CIC §790.03(h)(5). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(5) (see also the Company’s response to the CIC §790.03 allegation); however, the Company agrees interest was owed on this claim due to errors in cost share accumulation between the Company and Magellan. This occurred during the time that cost share accumulations were manually processed and remedial measures are addressed in the March 2016 Cost Share Automation described above. Additionally, the Company acknowledges the audit and claim adjustment did not occur promptly and interest was owed, but there was no intent to settle the claim

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inequitably. As a remedial measure, the Company issued an interest payment in the amount of $238.00. 34. In one instance, the Company failed to pay interest on a contested claim after 30 working days. Specifically, interest was owed for a period of 739 days and the Company paid interest for a period 647 days. The Department alleges this act is in violation of CIC §10123.13(c) and is an unfair practice under CIC §790.03(h)(5). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(5). (See also the Company’s response to the CIC §790.03 allegation). The Company acknowledges that interest was not calculated correctly due to a processor error. It is the Company’s general practice to promptly pay claims in which liability is reasonably clear and to pay interest as required by statute. In this particular instance, the claims processor calculated interest incorrectly. As a remedial measure, the error was corrected and additional interest in the amount of $42.92 paid to the provider. The Company does not agree this error constitutes an “unfair business practice” and a violation of the statute. 35. In one instance, the Company requested information that is not reasonably necessary to determine liability for payment of a claim. The Company requested medical records on a claim that had been pre-authorized. The Department alleges this act is in violation of CIC §10123.131(b) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(3) (see also the Company’s Response to the CIC §790.03 allegation); however, the Company agrees the requested medical records were not necessary to adjudicate the claim. The Company determined the request was a claims processor human error. When the error was identified, the claim was promptly adjusted the following day. As a remedial measure, Magellan implemented a Daily Quality Auditing program to promptly identify claims processing errors. The errors are logged, and individual coaching and refresher training is provided for the processor who caused the error. Weekly claims processor meetings are conducted; the agenda includes a review of logged errors and group discussion of how they could have been avoided, general information on correct claims processing and processor Q&A. The content of the meetings is documented for future reference. 36. In one instance, the Company failed, upon contesting a claim under CIC §10123.13, to affirm or deny the claim within 30 calendar days from the original notification. The Department alleges this act is in violation of CCR §2695.11(d) and is an unfair practice under CIC §790.03(h)(4). Summary of the Company’s Response: The Company disputes the characterization of the single alleged violation of CCR §2695.11(d) as constituting an unfair practice under CIC §790.03(h)(4) for the reasons stated in the Company’s

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response to the CIC §790.03 allegation. The Company acknowledges that a contested claim requires an original notice of contest indicating the reason for the contest as well as an affirmation or denial of the claim within 30 calendar days from the date of the original notice. The Company reminded Magellan that such notice is required and should be sent. As a result of the Department’s criticism, Magellan reviewed internal policies and procedures for contested claims and related notices. Policy revisions and system updates to better manage compliance with CCR §2695.11(d) were implemented on July 1, 2018. 37. In one instance, the Company failed to provide preauthorization of non-emergency medical services within five calendar days after the request for preauthorization. Specifically, the Company provided the preauthorization for non-emergency services in eight days. The Department alleges this act is in violation of CCR §2695.11(e) and is an unfair practice under CIC §790.03(h)(2). Summary of the Company’s Response: The Company states it does not agree it violated CIC §790.03(h)(2). (See also the Company’s response to the CIC §790.03 allegation regarding this single instance). The Company agrees authorization was slightly delayed (three days), but reasonably provided within eight days of receipt of the bill. This matter involved an individual, isolated delay. As a remedial measure, on or about September 18, 2017, refresher training was provided to the appropriate staff and the process will continue to be monitored during the daily Quality Auditing process. ACCIDENT AND DISABILITY (HEALTH) - ELECTRONIC REVIEW 38. In 38,488 instances, the Company failed to reimburse claims as soon as practical, but no later than 30 working days after receipt of the claim, or after receipt of all information necessary to determine payer liability. When tested for the timeliness of payment, the results of the electronic analysis identified 46,799 claims (37,968 group and 8,831 individual) were paid in more than 30 working days from receipt of the claim, or after receipt of all information necessary to determine payer liability. In response to the findings of the electronic review, the Company provided additional data which demonstrated compliance in 7,369 group claims and 942 individual claims. Therefore, 30,599 group claims and 7,889 individual claims were paid late. The Department alleges these 38,488 acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the alleged violations of CIC §10123.13(a) as constituting an unfair practice under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. In addition, the Department identifies late claim payments in prior criticisms, and then again counts those incidents in its electronic review. As a result, the Company is charged with two violations when at most, only one occurred.

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The Company has not had the opportunity to evaluate the validity of the Department’s methodology for electronic claims analysis. It is understood that a subset of claims data is extracted from the Company’s data files to identify claims paid beyond the statutory timeframe and aged claims paid without interest, but the attributes of the Department’s data extract are unknown. The Company does not agree with the Department’s conclusion that the Company failed to make timely payment of a claim in 38,488 instances. In the absence of process transparency, the Company is not fully able to assess the accuracy of the Department’s results.

The Department’s analysis does appear to not fully consider the variety of factors that would demonstrate timely claims processing, even when the Claim Received and Claim Paid dates are more than 30 working days apart. For example, a claim that was timely paid, may appear untimely under the Department’s analysis when that payment is later modified or adjusted. This would include circumstances such as appeals, corrected claim submissions by providers, and overpayment adjustments. Unless all relevant data is taken into account, claims may appear to have been processed beyond the statutory timeframe, when in fact they were not. Without the details of the Department’s methodology, it is not possible for the Company to determine the magnitude of the over-estimation of alleged untimely claims payments.

Despite the Company’s disagreement with the Department’s specific findings, the Company is committed to timely claims payment and accurate interest application, when necessary. As remedial action, the Company implemented a new claims inventory management system in the second quarter of 2018 to monitor aging claims and to improve inventory control. A pending claims report is produced and reviewed daily to monitor and promptly address aged claims. This new system allows the process owners to achieve targeted results in predictable, methodical and sustainable fashion, maximizing efficiency and quality. The Company will continue to reinforce this through its annual Fair Claims Settlement Training required for all examiners administering any operational processing functions for these claims.

The Company further would like to emphasize that the combined 39,512 health

and mental health claims identified in the Department’s electronic analysis as containing alleged violations (as noted here and below) represent only 2.17% of the total claims population of 1,815,488 claims that were electronically analyzed during the relevant review period. Furthermore, in the instances where claims are alleged to have not been timely paid, CIC § 10123.13(b) provides a remedy in the form of interest payments, and only 0.08% of such claims are alleged to have omitted the required interest payment, which represents 0.002% of the total claims analyzed. 39. In 10 instances, the Company failed to pay interest on an uncontested claim after 30 working days. The electronic review tested for claims where a payment was issued beyond 30 working days from the date of receipt and interest was not paid. The analysis identified 14,325 claims (13,128 group and 1,197 individual) which were paid late and without interest. As a result of the Department’s findings, the Company

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conducted a review of the analysis and identified 10 individual claims in which interest was due. The Company did not identify any group claims where interest was due. The Company provided additional data on claims in which interest was not payable. These claims included zero paid claims (applied to cost sharing) and claims with negative adjustments. The Department alleges these 10 acts are in violation of CIC §10123.13(b) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the alleged violations of CIC §10123.13(b) as constituting an unfair practice under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 allegation. In addition, the Department identifies late claim payments paid without interest in prior criticisms, and then again counts those incidents in its electronic review. As a result, the Company is charged with two violations when at most, only one occurred.

The Company has not had the opportunity to evaluate the validity of the Department’s methodology for electronic claims analysis. It is understood that a subset of claims data is extracted from the Company’s data files to identify claims paid beyond the statutory timeframe and aged claims paid without interest, but the attributes of the Department’s data extract are unknown. In the absence of process transparency, the Company is not fully able to assess the accuracy of the Department’s results. Nonetheless, as a remedial measure, the Company completed manual adjustments of the 10 uncontested claims and issued interest payments totaling $500.09. 40. In zero instances, the Company failed to pay interest on a contested claim after 30 working days. The Company provided a contested claims population which consisted of 9,452 group claims and 2,100 individual claims. When the Department tested this claims population for the payment of interest on claims not paid within 30 working days, the electronic analysis identified zero claims. Summary of the Company’s Response: No interest was due on these contested claims paid after 30 working days as the Company either paid the correct interest amount or the allowed amount was applied to the insured’s deductible. ACCIDENT AND DISABILITY (MENTAL HEALTH) - ELECTRONIC REVIEW 41. In 992 instances, the Company failed to reimburse claims as soon as practical, but no later than 30 working days after receipt of the claim, or after receipt of all information necessary to determine payer liability. When tested for the timeliness of payment, the results of the electronic analysis revealed that 3,087 claims (2,726 group and 361 individual) were paid more than 30 working days from receipt of the claim, or after receipt of all necessary information to determine liability. In response to the findings of the electronic review, the Company provided additional data which demonstrated compliance in 1,920 group claims and 175 individual claims.

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Therefore, 806 group claims and 186 individual claims were paid late. The Department alleges these 922 acts are in violation of CIC §10123.13(a) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the alleged violations of CIC §10123.13(a) as constituting an unfair practice under CIC § 790.03(h)(5) for the reasons stated in the Company’s response to the CIC § 790.03 Allegation. In addition, the Department identifies late claim payments paid in prior criticisms, and then again counts those incidents in its electronic review. As a result, the Company is charged with two violations when at most, only one occurred. The Company has not had the opportunity to evaluate the validity of the Department’s methodology for electronic claims analysis. It is understood that a subset of claims data is extracted from Magellan’s data files to identify claims paid beyond the statutory timeframe and aged claims paid without interest, but the attributes of the Department’s data extract are unknown. In the absence of process transparency, the Company is not fully able to assess the accuracy of the Department’s results. The Department’s analysis does appear to not fully consider the variety of factors that would demonstrate timely claims processing, even when the Claim Received and Claim Paid dates are more than 30 working days apart. For example, a claim that was timely paid, may appear untimely under the Department’s analysis when that payment is later modified or adjusted. This would include circumstances such as appeals, corrected claim submissions by providers, and overpayment adjustments. Unless all relevant data is taken into account, claims may appear to have been processed beyond the statutory timeframe, when in fact they were not. Without the details of the Department’s methodology, it is not possible for the Company to determine the magnitude of the over-estimation of alleged untimely claims payments. Despite disagreement with the Department’s specific findings, Magellan is committed to timely claims payment and accurate interest application, when necessary. Magellan Claims supervisors monitor the volume and aging of pended claims on a daily basis through online system reports. Pended claims are claims which have not completed the adjudication process and have one or more issues to be resolved by an online processor. The claims supervisor monitors the number and age of claims by each system pend and will allocate resources and initiate corrective action to clear pends and meet regulatory timeframes and performance standards required by the individual contracts. Pends are given to individual processors to clear by the claims supervisor based on the competency level of the processor and the complexity of the claim. Magellan will continue to reinforce this process through its annual training required for all examiners administering any operational processing functions for these claims.

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Blue Shield’s Delegation Oversight Department performs annual audits of Magellan’s claims processing for payment accuracy and turnaround times. The Company will continue its oversight in this area and, in addition, will request a correction action plan (CAP) from Magellan to address findings in the Report of the Market Conduct Examination of Claims Practices of Blue Shield of California Life & Health Insurance Company (2016), and, as applicable, will perform a focused audit of claims post implementation of the CAP. The Company also offers that the 1,014 mental health claims identified in the Department’s electronic analysis as containing alleged violations represent only 2.51% of the total claims population of 40,260 mental health claims that were electronically analyzed during the relevant review period. Furthermore, in the instances where mental health claims are alleged to have not been timely paid, CIC § 10123.13(b) provides a remedy in the form of interest payments, and only 2.17% of such claims are alleged to have omitted the required interest payment, which represents 0.05% of the total mental health claims analyzed. Ultimately, interest was paid on all claims. 42. In 14 instances, the Company failed to pay interest on an uncontested claim after 30 working days. The electronic review tested for claims where a payment was issued beyond 30 working days from the date of receipt and interest was not paid. The analysis identified 470 claims (440 group and 30 individual) which were paid late and without interest. As a result of the Department’s findings, the Company conducted a review of the analysis and identified 11 group claims and three individual claims in which interest was due. The Company provided additional data on claims in which interest was not payable. These claims included, but are not limited to, corrected claims, zero paid claims (applied to deductible), credit-backs, updated accumulators, provider refunds, claim exceptions, and claims with a “stop pay and reissue” status. The Department alleges these 14 acts are in violation of CIC §10123.13(b) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the alleged violations of CIC § 10123.13(b) as constituting an unfair practice under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC §790.03 Allegation. In addition, the Department identifies late claim payments paid without interest in prior criticisms, and then again counts those incidents in its electronic review. As a result, the Company is charged with two violations when at most, only one occurred. The Company has not had the opportunity to evaluate the validity of the Department’s methodology for electronic claims analysis. It is understood that a subset of claims data is extracted from Magellan’s data files to identify claims paid beyond the statutory timeframe and aged claims paid without interest, but the attributes of the Department’s data extract are unknown. In the absence of process transparency, the Company is not fully able to assess the accuracy of the Department’s results.

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Nonetheless, as a remedial measure, the Company completed manual adjustments of the 14 uncontested claims and issued interest payments totaling $1,439.70. 43. In eight instances, the Company failed to pay interest on a contested claim after 30 working days. The electronic review tested for contested claims where a payment was issued beyond 30 working days from the date of receipt and interest was not paid. The analysis identified 52 claims (16 group contested and 36 individual contested) that were paid beyond 30 working days from the date of receipt, and interest was not paid. As a result of the Department’s findings, the Company conducted a review of the analysis and identified six group contested claims and two individual contested claims in which interest was due. The Company provided additional data on these contested claims in which interest was not payable. These claims included, but are not limited to, a claim filed late, but the timely filing requirement was waived, corrected claims, retro-authorization, or claims initially overpaid. The Department alleges these eight acts are in violation of CIC §10123.13(c) and are unfair practices under CIC §790.03(h)(5). Summary of the Company’s Response: The Company disputes the characterization of the alleged violations of CIC §10123.13(c) as constituting an unfair practice under CIC §790.03(h)(5) for the reasons stated in the Company’s response to the CIC § 790.03 Allegation. Nonetheless, as a remedial measure, the Company completed manual adjustments of the eight contested claims and issued interest payments totaling $228.94.

BLUE SHIELD OF CALIFORNIA LIFE & HEALTH INSURANCE … Conduct Exam... · 2020. 1. 22. · blue...

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