California regulators are seeking fines of up to $9.9 billion from health insurer PacifiCare over allegations that it repeatedly mismanaged medical claims, lost thousands of patient documents, failed to pay doctors what they were owed and ignored calls to fix the problems.

In court filings and other documents, the California Department of Insurance says PacifiCare violated state law nearly 1 million times from 2006 to 2008 after it was purchased by UnitedHealth Group Inc., the nation’s largest health insurance company by revenue.

Regulators said the companies broke promises to maintain smooth operations for 130,000 of PacifiCare’s customers, resulting in what insurance officials nationwide believe is the largest fine ever sought against a U.S. health insurer.

“This is about intentional disregard for the interests of doctors, hospitals and patients in California, and the pursuit of cutting costs at any means possible,” said Adam Cole, the insurance department’s general counsel. “It’s a story of intense corporate greed.”

PacifiCare and UnitedHealth Group have rejected the state’s assertions, and they are fighting the proposed fines in a lengthy legal hearing that began 10 months ago in Oakland and could conclude as early as next month.

The insurers maintain that the state’s case largely involves administrative errors that did little harm to anyone. They point out that three-quarters of the allegations relate to PacifiCare’s alleged failure during a short period in 2007 to inform doctors and patients in correspondence of their right to appeal coverage decisions.

“The allegations concerning claims processing by PacifiCare are simply not true,” spokeswoman Cheryl Randolph said. “By all objective measures, PacifiCare pays its claims timely and accurately.”

Based in Cypress, PacifiCare has more than 1 million customers in California. Most of its policyholders have HMO coverage. At issue in this case are members who get their care through preferred provider organizations, which reimburse doctors and hospitals for services and require patients to pay a share of the cost.

The state’s accusations are spelled out in documents filed with a state administrative law judge who has been hearing testimony intermittently since last December. At the conclusion of the Oakland hearing, the judge will decide whether to recommend penalties.

California’s elected insurance commissioner ultimately will decide whether to accept the judge’s recommendations, revise them or reject them. That decision can be appealed to the California Superior Court.

The potential penalties are so large because the state is seeking fines as high as $10,000 for each of the 992,936 violations it is alleging, for a maximum $9.92 billion.

The National Assn. of Insurance Commissioners said the total potential fines appeared to be the biggest of their kind.

The association’s former president, New Hampshire Insurance Commissioner Roger A. Sevigny, said it did not keep historical records of such actions, but “a penalty this size would likely be among the largest, if not the largest fine, ever required of a U.S. insurance company by a state insurance regulator.”

Those involved in the case said they expected the total fine — if there is one — to be far less than the maximum allowed. UnitedHealth Group said it would appeal any penalties that significantly exceed those levied in the past for similar violations.

At the heart of the case is the $9.2-billion deal that put PacifiCare under the wing of UnitedHealth Group, an insurance behemoth based near Minneapolis that now has 25 million policyholders in 50 states and had $81 billion in revenue last year.

When executives sought California’s approval for the acquisition in 2005, they assured then-Insurance Commissioner John Garamendi that they would maintain PacifiCare’s workforce, organization and relationships with providers.

“It makes sense to keep strong operations in California,” UnitedHealthcare’s former chief executive, Robert Sheehy, told Garamendi at a hearing that year. “I don’t believe you can manage California business outside the state.”

But complaints emerged soon after the deal closed. Doctors said PacifiCare failed to acknowledge their claims or to enter correct payment contract rates into its computer system, resulting in lower reimbursements. Providers also said the insurer mixed up which physicians belonged to its medical network.

Policyholders, meanwhile, inundated the Department of Insurance with complaints about PacifiCare losing their records, some of which were shipped to India, where they were miscoded and could not be retrieved. Many customers said the insurer denied claims for covered procedures and then ignored requests for help.

Cathy Wiser, a former PacifiCare policyholder from the San Fernando Valley, recalled her frustration with the company. Testifying at the outset of the administrative law hearing in December, she told how PacifiCare had rejected medical claims for her son, who had Crohn’s disease, even after she repeatedly faxed over forms indicating that he was covered.

PacifiCare lost the documents in its computer system, she said, heightening her anxiety over her son’s health.

“Nobody should have to go through this,” Wiser said in an interview last week. “Insurance companies should not be allowed to victimize patients at their most vulnerable, when they need them the most.”

State regulators investigated and, in early 2008, announced that they had uncovered 133,000 violations of state law with maximum penalties of $1.33 billion. The matter grew to nearly 1 million violations as the case unfolded this year in the administrative law court.

A second regulator, the state Department of Managed Health Care, fined PacifiCare $2 million over allegations that it improperly denied medical claims for HMO policyholders. The carrier paid the penalty but did not admit any liability.

PacifiCare executives said the company has been unfairly characterized by state officials as a bad corporate player even as it has worked hard to obey state law and meet the needs of the many groups that depend on it.

“We are committed to strong operational performance and maintaining a high level of service to physicians, hospitals and health plan members,” said Randolph, the PacifiCare spokeswoman. “Californians are highly satisfied with PacifiCare, and we have been recognized externally for the high-quality service we provide to our members and participating providers.”

duke.helfand@latimes.com