The Wall Street Journal-20080214-Probe Targets Health Insurers On Payments- New York Spotlights Unit Of UnitedHealth That Sets Out-of-Network Rates

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Probe Targets Health Insurers On Payments; New York Spotlights Unit Of UnitedHealth That Sets Out-of-Network Rates

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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.

The move takes aim at a common practice among health insurers that can result in higher medical-bill payments for many 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 area.

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 Inc., Cigna Corp. and Wellpoint Inc.'s 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.

Linda Lacewell, who heads Mr. Cuomo's health-care industry task force, characterized the Ingenix database as "garbage in, garbage out," with insurers sometimes manipulating data and knocking out price information from doctors with higher charges.

A UnitedHealth spokesman disputed claims that the Ingenix database might be excluding higher physician fees in coming up with a usual and customary charge. Instead, the outliers that are excluded tend to be on the lower spectrum of physician charges, he said. UnitedHealth said it is in discussions with Mr. Cuomo's office and will continue to cooperate fully.

In a typical scenario, Mr. 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 industrywide scheme perpetrated by some of the nation's largest health insurance companies to defraud consumers," Mr. 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."

"Real people get stuck with excessive bills and are less likely to seek the care they need," Mr. Cuomo said.

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.

"It's unfortunate that today's media event ignored these facts and failed to address the appropriateness of charging out-of-network patients $200 for 'simple doctor visits' lasting '15 minutes' -- which equates to a billing rate of at least $800 an hour," said Karen Ignagni, president of America's Health Insurance Plans, the main health-insurance industry lobby.

This isn't the first time the database or practice has triggered legal action. The American Medical Association sued UnitedHealth in March 2000 alleging the database is inaccurate. The suit is still pending in U.S. District Court for the Southern District of New York.

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 health-care industry."

With $75.4 billion in revenue last year and 26 million health-plan members, UnitedHealth is the country's largest insurer in terms of revenue and the second largest in medical-plan members.

Mr. Cuomo's inquiry could intensify the rancorous relationship between insurers and health-care providers. Shortly after the press conference, health plans accused his office of having an "inadequate understanding" of health-care reimbursement and said that, rather than singling out insurers, it should also examine how doctors decide what to charge patients. "Physicians routinely and grossly inflate their out-of-network charges, and have been doing so for years," the New York Health Plan Association said in a statement.

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Charging More

New York is probing a common practice of health insurers that saddles

consumers with higher bills.

-- Health insurers pay out-of-network providers a 'going rate,' not

necessarily their actual fee.

-- Patients often must pay the difference, especially in PPO or indemnity

plans.

-- Insurers contend that the problem is high doctor fees, not low

reimbursement rates.