US: UnitedHealth Faces Suit Over Payment System

Publisher Name: 
The Wall Street Journal

The New York attorney general said his office plans to sue UnitedHealth Group Inc. as part of a broader investigation into the way the health
insurance industry sets payment rates for hospitals and doctors outside
of their networks.

At the center of the investigation is a common
practice among health insurers. While they typically pay in-network
hospitals and physicians a negotiated fee for medical claims,
out-of-network providers are reimbursed according to "usual and
customary" or "reasonable" charges, or what insurers have determined is
the going rate for a given procedure or service in that area.

Doctors and hospitals have long complained that the
method health plans use is opaque and sets their reimbursements
artificially low. When that usual and customary charge is much lower
than what the provider originally charged, patients are often caught
responsible for the difference.

The state's attorney general, Andrew Cuomo, said that
his office had issued 16 subpoenas to different health insurers as part
of the probe, including Aetna Inc., Cigna Corp. and Empire Blue Cross Blue Shield, a subsidiary of WellPoint
Inc. UnitedHealth is at the center because it owns, through its unit
Ingenix, the database, or tool, that much of the rest of the industry
uses to determine usual and customary charges.

Called the Prevailing Healthcare Charges System, the
database contains price information from more than 1 billion medical
claims collected from dozens of health plans nationwide. From that
database, health insurers determine what a specific doctor should
charge for a given procedure in a given area and automatically reduce
the bill down to a "reasonable" size before reimbursing the patient or
doctor.

UnitedHealth licenses the database's use to other
major insurers, who say the system protects them, and ultimately
consumers, from overpaying doctors whose bills are out of whack from
their peers. This isn't the first time the database or practice has
triggered legal action. The American Medical Association filed lawsuits
against UnitedHealth in March 2000, alleging that the database doesn't
accurately measure reimbursements, but instead includes fees that are
discounted and often dismisses fees from high-charging doctors.

"We believe there was an industrywide scheme
perpetrated by some of the nation's largest health insurance companies'
to defraud consumers, Cuomo said at a news conference. He said he plans
to sue UnitedHealth and Ingenix within five days, calling the health
insurer's ownership of the billing data provider "a gross conflict of
interest."

Cuomo, whose office has investigated the matter for
six months, estimated the activity has occurred for about a decade. As
an example, he said, UnitedHealth insurers knew most simple doctor
visits cost $200 but told members the typical rate was only $77. The
insurers then applied a contractual reimbursement rate of 80%, covering
only $62 for a $200 bill, leaving the patient with a $138 balance.

Linda Lacewell, who heads Cuomo's healthcare industry
taskforce, accused UnitedHealth of telling an "outright lie" to
consumers by claiming it based rates on information from across the
country. She characterized the Ingenix database as "garbage in, garbage
out," with insurers sometimes manipulating data before submitting it.

Ingenix doesn't provide a single audit of the
information received or make sure it is fair or right, even though the
business used the information to set rates for consumers, according to
Lacewell.

UnitedHealth, in a statement, said it is using
dependable database tools, with reference data that are "rigorously
developed, geographically specific, comprehensive and organized using a
transparent methodology that is very common in the heath care
industry." UnitedHealth said it is in ongoing discussions with Cuomo's
office and will continue to cooperate fully.

Cigna said it will cooperate fully with Cuomo's office and will respond appropriately to its probe, per usual company practice.

--Dinah Wisenberg Brin and Chad Bray contributed to this article.

Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com and Theo Francis at theo.francis@wsj.com

AMP Section Name:Regulation
  • 182 Health