PACIFICARE HEALTH SYSTEMS TO PAY U.S. MORE THAN $87 MILLION
TO RESOLVE FALSE CLAIMS ACT ALLEGATIONS

WASHINGTON, D.C. - PacifiCare Health Systems will pay the United States $87.3 million to settle allegations that it and its predecessor companies violated the False Claims Act with respect to claims submitted to the Office of Personnel Management, the United States Attorney's Office for the District of Columbia and the Justice Department announced today. The predecessor firms were FHP International and TakeCare Corporation.

This is the largest civil settlement involving contracts with OPM to provide benefits to federal employees under the Federal Health Benefits Program (FEHBP). Today's settlement resolves allegations by the United States that PacifiCare, through its subsidiary health maintenance organization plans, submitted inflated claims for insurance payments based on rates that were not developed in accordance with OPM regulations and rating instructions.

"Our office is committed on behalf of OPM to deter wrongdoing and recover back ill-gotten gains so that FEHBP funds are preserved for their legitimate purpose of providing health care benefits to federal employees," said Roscoe C. Howard, Jr., United States Attorney for the District of Columbia. Mr. Howard also praised the close working relationships among his office, OPM and the Department of Justice that resulted in this significant settlement.

The United States alleged that PacifiCare's subsidiaries failed to follow the applicable OPM rules and regulations when developing the rates it charged for health care benefits under its FEHBP contracts, including failing to give the health care program the most favorable rates PacifiCare gave its similarly situated commercial customers, failing to coordinate FEHBP benefits with those provided to annuitants over age 65 under the Medicare Program, and submitting statements to OPM that failed to fully disclose rate adjustments due to FEHBP. The settlement agreement involved allegations of improper rating by PacifiCare for certain contracts in effect between 1990 and 1997.

"Assuring the integrity in the expenditure of federal health care funds, including those spent by OPM under contracts for health insurance for federal workers, continues to be a top priority," said Assistant Attorney General Robert D. McCallum, Jr., head of the Department's Civil Division.

The civil settlement includes a full resolution of claims brought against PacifiCare and its predecessor FHP International, Inc. by a former employee of the defendants, Valerie Fletcher, under the qui tam provisions of the False Claims Act. Ms. Fletcher filed her suit in the U.S. District Court for the District of Columbia in November 1998. Ms. Fletcher's suit will be dismissed and she will receive approximately $3.5 million of the total recovery as her statutory award. Under the qui tam provisions of the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of the settlement if the government takes over the case and reaches a monetary agreement with the defendants.

The settlement will also result in the dismissal of the action brought by PacifiCare of Ohio in the United States Court of Federal Claims challenging an OPM audit determination requiring the company to repay funds as a result of its defective rating practices.

The case was investigated by the Office of Inspector General of the Office of Personnel Management, and was handled by the United States Attorney's Office of the District of Columbia and the Civil Division of the Department of Justice.

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