New York takes on United over tactics as industry arbiter of physician pay

The state's attorney general says out-of-network payment rates are based on a faulty database designed to undercut the real "usual, customary and reasonable" rates.

By Emily Berry — Posted March 3, 2008

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An investigation into how a UnitedHealth Group subsidiary determined reimbursement for out-of-network physicians across multiple insurers alleges to show a pattern of underpricing services to shift the payment burden from insurers to patients.

New York Attorney General Andrew Cuomo on Feb. 13 announced his intent to sue United, after a six-month investigation focusing on its Ingenix subsidiary. Ingenix operates a database used by most insurers to determine the so-called usual, customary and reasonable rates for physician services.

Cuomo, speaking at a news conference in New York City, said Ingenix had manipulated UCR rates to keep them artificially low, resulting in additional profit for United and unnecessary costs for consumers.

AMA President-elect Nancy H. Nielsen, MD, PhD, an internist from Buffalo, N.Y., addressed reporters at Cuomo's news conference. "I would submit to you that what you are seeing is indeed usual and customary for these insurers, but it is not reasonable, and it is not fair, and it is unfair primarily to consumers."

Robert B. Goldberg, DO, president of the Medical Society of the State of New York, said United's actions drive a wedge between physicians trying to collect for the cost of delivering care and patients who thought their insurance was supposed to cover it.

"Unfortunately," he said, "when a low payment rate was reimbursed to the patient, the patients looked to the doctor and challenged the doctor, and said, 'It's your fault. How dare you charge more than something called usual and customary?' "

United denies Cuomo's allegations. The company said in a prepared statement that Ingenix's data was "rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry." It also said it would cooperate with Cuomo's office. Company spokesman Tyler Mason declined further comment.

Cuomo's investigation is extending to other plans that use Ingenix. He said he is issuing subpoenas to 16 other health plans, including WellPoint's Empire BlueCross BlueShield, Cigna, Humana and Aetna. Humana has acknowledged receiving a subpoena.

A longtime battle

Cuomo's action is the latest fight in a years-long battle involving out-of-network rates, as doctors accuse plans of intentionally limiting rates and taking away one of the few bargaining chips they have left -- dropping a health plan.

For example, Aetna is appealing a $9.5 million fine in New Jersey for capping out-of-network pay at 125% of the existing Medicare fee schedule instead of billed charges. Aetna's attempts to use the 125% cap elsewhere has doctors accusing it of violating the terms of class-action litigation over physician reimbursement, which Aetna denies.

In 2000, the AMA joined the MSSNY and the Missouri State Medical Assn. in suing United and Metropolitan Life Insurance, whose health insurance program United administered at the time. The medical groups asked that courts order United to reveal how it set usual and customary rates. That class-action lawsuit is pending in the U.S. District Court for the Southern District of New York.

"When we went to Ingenix to explain it, they said, 'We can't show you, it's proprietary,' and they say, 'But don't worry, it's really good,' " Dr. Goldberg said.

But the data were only "really good" for United, he said.

Dr. Goldberg said using and perpetuating flawed data is United's way of setting a price for out-of-network care that is discounted as deeply as in-network care.

"These doctors chose not to participate in the networks. They did not and do not agree to accept the discounts that Ingenix says they're going to take, and no amount of bullying by United can change that fact," he said.

Ingenix was one of five independent but wholly owned segments United established in 1998 in a reorganization of its business. As well as its database for health plans, Ingenix markets revenue-cycle management and coding software to physicians.

According to company materials, "There is an Ingenix product or service at work in nearly every health care organization in the United States."

Cuomo made it clear that his office is not stopping with a lawsuit against Ingenix and United, calling his efforts "an industrywide investigation."

Other insurers pledged to cooperate with the probe.

"Aetna is committed to transparency so that consumers can make more informed decisions, and has been a leader in the industry in helping our members better understand the costs of physician and other provider services," the Hartford, Conn.-based company's statement read.

Empire BlueCross BlueShield issued a statement saying in part that the company, "has relied upon Ingenix as one of the only companies that could provide data points that were represented to be broadly based and provided a credible information set that covered multiple markets across the country. We look forward to continuing to work with the Attorney General and his staff in determining if any of the information used was inaccurate or inappropriately determined."

Meanwhile, industry trade groups issued statements suggesting that doctors were at fault for high out-of-network costs for patients, because they set their rates too high.

"Physicians routinely and grossly inflate their out-of-network charges, and have been doing so for years," said New York Health Plan Assn. President and CEO Paul Macielak.

Regina Herzlinger, DBA, a Harvard University business professor and advocate of consumer-directed health care, said Cuomo's lawsuit reveals a major flaw in the third-party-payer system.

"If Attorney General Cuomo's suit has merit, it points out one thing, and that is that the insurer should not be the one who consumers rely on for usual and customary fee information. It should be an independent third party who computes it, other than Ingenix," she said. "Similarly, doctors need to post their pricing information for people who are part of an insurance plan where they pay 20% or whatever for going out of network."

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United under fire

New York Attorney General Andrew Cuomo's lawsuit against UnitedHealth Group for allegedly defrauding consumers by manipulating reimbursement rates is but the latest in a recent series of actions against the Minnetonka, Minn.-based company. Among the others:


  • The California Dept. of Insurance and Dept. of Managed Care concluded a joint investigation of United's conduct after it acquired PacifiCare HealthCare Systems. The insurance department said that over a one-year period, United violated state law on as many as 133,000 occasions related to reimbursement issues. No penalty has yet been proposed. Meanwhile, the managed care department, which regulates HMOs, issued a $3.5 million fine.

December 2007

  • Former UnitedHealth Group CEO William McGuire, MD, agreed to $468 million in penalties to settle a Securities and Exchange Commission investigation into improper stock-option backdating. About $448 million of that total consisted of options Dr. McGuire agreed to forfeit, on top of $200 million in options he forfeited in 2006.
  • CEO Stephen Hemsley told investors that the company expected to lose some commercial membership in 2008, in part attributable to problems with the merger between United and PacifiCare.

September 2007

  • The company agreed to a $12 million settlement with regulators in 36 states and Washington, D.C., requiring United to reach specific benchmarks for claims accuracy by 2009 or risk further penalties.

July 2007

  • Cuomo contacted United to warn of a possible lawsuit over the company's physician ranking program, making United the first health plan under his scrutiny over the issue. By November, United and other major health plans settled with Cuomo to make their ranking programs more transparent and quality-based, and to submit the plans to outside oversight.

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"An industrywide scheme"

That was how New York Attorney General Andrew Cuomo described UnitedHealth Group's Ingenix business, whose database is used by the country's largest health plans to set out-of-network pay rates. Cuomo and his investigators outlined why the Ingenix data are flawed. United says it has done nothing wrong.

  • "The Ingenix database lacks information about the provider's training and qualifications, the type of facility where the comparative service was provided, and the patient's condition."
  • "Ingenix manipulates the database by deleting valid high charges and deleting proportionally more high charges than low charges."
  • "Ingenix deletes from the database charges that have modifiers to indicate procedures or services with complications. The charges are typically higher."
  • "Ingenix fails to collect information affecting the value of the service, such as whether the service was performed by someone other than a physician."
  • "Ingenix pools data from dissimilar providers (such as nurses, physician assistants and physicians) for use in the Ingenix database."
  • "The Ingenix database contains outdated information."
  • "Ingenix fails to audit the data it receives from data contributors to ensure that they have submitted all appropriate data and have not included negotiated or discounted rates."
  • "Some data contributors delete higher charges from the data they submit to the Ingenix database, thereby skewing reimbursement rates downward."
  • "Ingenix uses the defective data in the database, and a deficient methodology, to 'derive' additional charges. The use of defective data to formulate a rate for other charges means that the resulting rate itself is defective."

Source: New York Attorney General Andrew Cuomo's office

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