Court OKs Health Net deal over out-of-network pay
■ An opinion in the settlement detailed several "flaws" with a UnitedHealth Group subsidiary's database used industrywide to set physician payment rates.
By Amy Lynn Sorrel — Posted Sept. 22, 2008
A federal judge's approval of a $255 million settlement in a case alleging that Health Net used a faulty database to underpay members for out-of-network care may bode well for physicians in their fight against the managed care industry's widespread use of the database.
The agreement resolved three class-action lawsuits targeting Health Net's reliance on Ingenix, a UnitedHealth Group subsidiary that sells a database used by most insurers to determine the usual, customary and reasonable charges for out-of-network services. Plaintiffs alleged that Ingenix underset UCR rates and that Health Net used the database to shortchange patients on medical bills.
Health Net admitted no liability but agreed to pay $215 million to more than 2 million members. The company also consented to several business practice changes -- valued at $40 million -- including ceasing use of Ingenix within the four-year expiration date of the agreement in 2012. Until then, Health Net will pay 14.5% above Ingenix-determined rates when reimbursing physicians' or patients' out-of-network claims.
Noting several "serious flaws" with the database, New Jersey District Court Judge Faith S. Hochberg, in an Aug. 8 opinion, said the settlement "raises a clarion call for greater disclosure about the databases used for health care coverage." The pact -- among the largest of its kind -- had changes "that will have a lasting impact" on Health Net's out-of-network reimbursement practices, she said.
Health Net promised to:
- Establish a process for health plan members to obtain accurate cost estimates before treatment.
- Negotiate fees with physicians ahead of time to avoid balance billing.
- Set up an independent appeals process allowing patients to contest excessive claims.
Rate-setting a long-standing concern
The settlement echoes concerns long held by organized medicine over insurers' rate-setting tactics and is the latest in a series of actions questioning the integrity of the database.
In 2000, the American Medical Association, Medical Society of the State of New York and Missouri State Medical Assn. sued United and Metropolitan Life Insurance, alleging that the database uses unreliable data to determine UCR rates and fails to adequately compensate doctors and patients. The class-action lawsuit is pending in the U.S. District Court for the Southern District of New York.
Similar concerns prompted New York Attorney General Andrew M. Cuomo to launch an industrywide investigation into alleged rate manipulations. In February, Cuomo subpoenaed 16 health insurers, including Health Net, that used what he called a "defective" database operated by Ingenix to shift costs to patients. The attorney general also announced his intent to file suit against United but has yet to file suit. United has denied any wrongdoing. The AMA endorsed the ongoing probe.
Meanwhile, the Health Net settlement puts other insurers on notice and could help set the stage for other such cases, said D. Brian Hufford, an attorney representing Health Net members.
"Now there's knowledge and understanding of the defects [with Ingenix], and it's not the black box it used to be," said Hufford, who also is assisting in the AMA's case. "The court's analysis of those problems is something other courts and parties can focus on."
The New Jersey court detailed what it considered "numerous errors" with Ingenix' process for calculating UCR rates, including:
- Compiling data voluntarily submitted by insurers.
- Editing out so-called "high fees" without determining whether the charges are valid.
- Inaccurately standardizing CPT codes.
Hufford said Health Net's move toward transparency will help preserve a physician-patient relationship often disrupted when insurers fail to cover patients' bills and doctors are forced to collect outstanding balances.
Health Net spokeswoman Alice Ferreira characterized the settlement as "good news" for patients.
"The business practice changes will just add to the transparency in out-of-network claims so we can help patients make better health care decisions," Ferreira said. Health Net is cooperating with Cuomo's investigation, she added.
Neither United nor Ingenix were parties in the Health Net dispute and did not participate in the settlement. A spokesman said United did "not have any obligations arising out of the settlement" but declined to comment further. In past statements, United has stood by the Ingenix database.
Joan Schimml, Ingenix spokeswoman, called the firm's database a "sound tool" for giving health plans "reliable data on what physicians charge," and helping consumers find affordable out-of-network care.