United agrees to pay $350 million, scrap system that undercut fees
■ The insurer pledged to spend another $50 million to help establish an independent database of prevailing payment rates that would be governed by a nonprofit.
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The way physicians are paid for out-of-network care has the potential to change in their favor thanks to two settlements reached with UnitedHealth Group, which has for the last decade held the master key to the industry's "usual, customary and reasonable" pay rates.
An agreement with New York State Attorney General Andrew Cuomo, announced Jan. 13, requires United to scrap two databases sold by wholly owned subsidiary Ingenix and used by most major insurers to determine the so-called UCR, which is used to determine payment for most out-of-network services.
Cuomo said United and other insurance companies were systematically lowballing the UCR rates and, in the process, shortchanging patients and physicians.
Two days after the deal with Cuomo, United settled a class-action federal lawsuit, filed in 2000 by the Litigation Center of the American Medical Association and State Medical Societies, the Medical Society of the State of New York and the Missouri State Medical Assn., for $350 million. The settlement is to be paid to physicians and patients affected by the out-of-network payment system.
As part of both deals, United pledged to spend $50 million to help establish a new independent database governed by a nonprofit.
AMA President Nancy H. Nielsen, MD, PhD, an internist from Buffalo, N.Y., said the artificially low UCR figures given to patients meant that they would assume that their physician overcharged them, creating a rift between patient and doctor.
"Now the data will be reliable, people will know what they're getting, and that wedge driven between patient and doctor will go away," she said at a news conference announcing the United settlements in New York.
The new database is meant to be used industrywide and will be open to the public on a Web site so that patients and doctors easily can see the prevailing payment for a given service in their area.
Having a publicly available database of typical charges is a particularly significant development for both physicians and patients, said Steve Clark, president of Clark Benefits Consulting, based in Racine, Wis.
With the creation of the new database and public Web site, he said, "we will take an enormous step toward pricing transparency and consumerism in health care."
Meanwhile, other experts said the deal could give physicians more negotiating power. Health plans had used UCR as a means to ensure that physicians who left their networks could not benefit as well financially from doing so, thus in theory giving doctors less incentive to make such a change.
How rates stayed secret
According to Cuomo's investigation, United and the other insurers fed skewed data into Ingenix's Prevailing Healthcare Charges System and Medical Data Research databases. Then the same insurers paid for access to the information, which was labeled as "independently researched" and "proprietary" research.
Cuomo said the PHCS database was the result of a "closed loop," tainted by a clear conflict of interest. He said United had an incentive to report lower payments and edit out high ones to lower the resulting UCR payment rate health plans would pay out-of-network doctors.
In the course of reviewing more than 1 million bills and the Ingenix databases, Cuomo's office determined that some physicians in New York were underpaid by as much as 28%.
By underpaying for out-of-network services for the last decade, the insurance companies cheated thousands of their members and physicians out of hundreds of millions of dollars, Cuomo said.
When insurers paid less than fair compensation for services, patients were left to pay the remainder -- even though they had paid extra to the insurance company for access to out-of-network doctors.
In many cases, doctors never collected the difference between their bills and the artificially low out-of-network payments, either because they wrote it off or because the patient couldn't afford to pay the unexpectedly high out-of-pocket amount.
United wasn't the only company involved, even though its subsidiary was the central database.
Cuomo said his office intended to pursue agreements from other insurers to use the new database when the Ingenix one is eliminated.
"We're starting with United because they own Ingenix," he said. "Once you change Ingenix, you will change the entire system."
Days after the United settlement, Aetna agreed to stop using Ingenix databases and to contribute $20 million to the nonprofit that will hold the independent data.
United did not officially admit to any wrongdoing at the Jan. 13 news conference. But Mitch Zamoff, general counsel for United Healthcare, said, "We regret that conflicts of interest were inherent in these Ingenix database products."
The new database has funding commitments of at least $70 million for the next five years. Officially, at press time, its home was undetermined but looked likely to be Syracuse University, mentioned specifically in the litigation settlement with the AMA, or another New York university. Syracuse officials said they would be honored to host the database but could not comment about the situation.
Wherever the information is housed, United and Aetna also have agreed to share claims and billing data to serve as a basis for the new database.
United and Aetna are barred for at least five years from developing any competing database. Ingenix may remain as a company. United spokesman Tyler Mason said the two databases were responsible for less than 2% of Ingenix's revenue. The company also houses consulting and research divisions.
As for the lawsuit settlement, before any physician gets a check in the mail from United, a judge must give the final OK for the AMA litigation settlement, and that could take a few months. Any class member who wishes to opt out also will have a chance to do so.
The AMA is preparing resources for physicians seeking their shares of the settlement.
In addition to translating into some compensation for physicians who were hurt financially by the faulty out-of-network pay rate system, the United settlements signal a change to the health care system as a whole, said Michael Rosenberg, MD, a plastic surgeon from Mount Kisco, N.Y. He also is president of the Medical Society of the State of New York.
In particular, he said, the new Web site with accurate information will shift the balance of power between health plans and doctors during negotiations. "There's certainly a sense of satisfaction in them no longer being able to do the wrong thing and that they'll have to make recompense, but more importantly there's now going to be transparency," Dr. Rosenberg said.