A Medical Device Daily

The New York attorney general said his office plans to sue UniteHealth Group (Minnetonka, Minnesota) as part of a larger investigation into the way the health insurance industry sets payment rates for hospitals and doctors outside of their networks.

The move is designed to put the spotlight on a common practice among health insurers that can result in higher medical bill payments for consumers. While insurers typically pay in-network hospitals and physicians a negotiated fee for medical claims, out-of-network providers are reimbursed “usual and customary” or “reasonable” charges. These charges are set according to what insurers have determined is the going rate for a given procedure or service in a specific

Health insurers pay out-of-network providers a “going rate,” not necessarily their actual fee, and patients often must pay the difference, especially in PPO or indemnity plans.

When the usual and customary payment is much lower than what the provider charged, patients are often billed for the difference. Doctors and hospitals have long complained that the methodology is opaque and sets reimbursement artificially low.

As part of the probe, Andrew Cuomo, the New York attorney general, issued subpoenas to 16 health insurers, including Aetna (Hartford, Connecticut), Cigna (Bloomfield, Connecticut) and Wellpoint’s (Thousand Oaks, California) Empire Blue Cross Blue Shield unit. UnitedHealth is at the center because it owns, through its unit Ingenix, the database 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 one billion medical claims collected from more than 100 health plans nationwide. Health insurers typically compare out-of-network claims against the database and automatically reduce the bill to a “reasonable” size before reimbursing the patient or doctor.

In a typical scenario, Cuomo said an out-of-network doctor might charge $200 for an office visit but is told that the going rate is $77. The insurer then usually pays only 80% of that, leaving the patient responsible for the difference of about $138. His office’s six-month investigation so far, however, showed that such rates generated by Ingenix were much lower than the actual cost of typical medical expenses.

The patients most often left paying such differences are those with indemnity insurance or in preferred-provider organizations, which is roughly half of people who have private health plans. These give them more freedom in choosing doctors and hospitals than health maintenance organizations, or HMOs, but typically hold them responsible for 20% to 30% of the bill and charge them a higher premium.

“We believe there was an industry-wide 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. He added that the health insurer’s ownership of the billing-data provider was “a gross conflict of interest.”

UnitedHealth licenses use of the database to other insurers, who say that without the practice, physicians could charge whatever they wanted, particularly since there is virtually no price competition among hospitals and physicians.