The reimbursement system used by most health insurers to pay out-of-network claims is flawed and results in higher out-of-pocket costs for plan members and lower costs for insurers and other payers, charges New York Attorney General Andrew Cuomo.
Cuomo announced Wednesday, February 13, plans to sue Minnetonka, Minnesota-based UnitedHealth Group Inc. and its subsidiaries for dramatically under-reimbursing out-of-network medical expenses using data provided by Ingenix, which is a unit of UnitedHealth.
Cuomo has issued subpoenas to 16 of the nation’s largest health insurers—including Hartford, Connecticut-based Aetna Inc.; Empire BlueCross BlueShield, a unit of Indianapolis-based WellPoint Inc.; and Cigna Healthcare, a unit of Philadelphia-based Cigna Corp.—to determine whether they also are underpaying providers by relying on the Ingenix’s Prevailing Healthcare Charges System.
The investigation could ultimately affect self-insured employers as well, as they often rely on Ingenix data, observers note.
Ingenix’s PHCS is used by most of the nation’s health insurers to calculate out-of-network reimbursements based on “usual and customary”—also known as “reasonable and customary”—charges for medical expenses. Ingenix says it derives these usual and customary charges by using insurers’ billing information for similar types of medical services, taking into account the type of physician and geographic location.
Cuomo charges that the usual and customary rates produced by Ingenix were “remarkably lower” than the actual cost of typical medical expenses, leading to higher out-of-pocket charges to plan members.
Cuomo also criticized UnitedHealth’s ownership of Ingenix, saying it is a conflict of interest because the insurer uses Ingenix’s data to support its own reimbursement rates.
In response to Cuomo’s announcement, UnitedHealth issued a statement defending its database.
“The reference data is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry,” UnitedHealth said.
If the litigation determines the Ingenix system is skewed in favor of payers, it could affect self-insured employers as well as insurers since most of them rely on the same systems used by insurers to calculate health plan reimbursements, benefit experts note.
“It is bad news for several reasons. Self-insured employers use the same reasonable and customary basis for out-of-network claims, so it could lead to higher claims costs,” said Joe Martingale, an independent benefit consultant based in New York.
“The net effect is that the insurers didn’t pay enough, and self-insured employers that bought into those systems are going to be similarly affected,” said Mark A. Rucci, senior vice president at Apex Management Group, a benefit consulting unit of Gallagher Benefits Services based in Princeton, New Jersey.
Filed by Joanne Wojcik of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
