For a number of years, alert consumers and health care providers sensed that the “usual and customary” cost estimates insurers were using to pay out-of-network claims were lower than market rates. But because insurers refused to explain how they developed their estimates, health care consumers could do very little to challenge the insurance industry’s practices.
During the Committee’s March 31 hearing, for example, Chairman Rockefeller discussed the case of a consumer in Seattle, Washington, named Jill Faddis. In 2001, Ms. Faddis’ husband was billed $140 for a periodontist visit, but their insurance carrier, Aetna, informed them that the “usual and customary” charge for this service was $65. Ms. Faddis thought Aetna’s figure seemed low, so she took out her Yellow Pages and called every periodontist in her area to find out how much they charged for the service her husband received. As the figure (Figure 1) attached to the end of this report illustrates, she found that periodontists in her area billed between $110 and $163 for the service. But because Ms. Faddis had no effective way to challenge Aetna’s obviously incorrect estimate, she and her husband paid the $75 difference.36
32 UnitedHealth Settles New York Reimbursement Probe, Reuters (Jan. 13, 2009).
33 State of New York, Office of the Attorney General, Assurance of Discontinuance Under Executive Law §63(15), In the Matter of UnitedHealth Group Incorporated (Investigation No. 2008-161) (Jan. 13, 2009) (Online at http://www.oag.state.ny.us/bureaus/health_care/HIT2/pdfs/United%20Health.pdf).
34 March 2009 Health Care Hearings¸ Testimony of Stephen Hemsley.
35 Id., Testimony of Andy Slavitt, CEO, Ingenix, Inc.
36 Senate Commerce Committee Staff Telephone Conversation with Jill Faddis (March 30, 2009); See
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Only through a series of private lawsuits and an investigation by the New York Attorney General’s office did American consumers and health care providers finally begin to discover why insurance companies’ reimbursements were consistently lower than the real costs of their care.
A. Private Legal Actions
In March 2000, the American Medical Association (AMA), the Medical Society of the State of New York, the Missouri State Medical Association, and a number of other interested parties filed a class action suit against UnitedHealth in a New York court. The suit alleged that the Ingenix database products improperly reduced the reimbursements UnitedHealth paid to its policy holders and, by extension, their health care providers.37 At the time the suit was filed, an AMA trustee, Dr. Donald Palmisano, claimed that "the case calls into question the entire payment mechanism that the insurance companies have used for years in paying physicians."38
On January 15, 2009, the AMA publicly announced it had reached a tentative settlement in the suit, in which UnitedHealth agreed to pay $350 million towards reimbursing patients and health care providers who received low payments due to the faulty data generated by Ingenix.39 On May 7, 2009, however, the federal judge presiding over the class action suit refused to approve the settlement. In his opinion, the judge raised concerns about the sufficiency of the settlement amount and the quality of the data provided to the plaintiffs in reaching the settlement amount. 40
In addition to the AMA legal challenge, other plaintiffs have filed suit against the health insurance industry challenging the validity of Ingenix’s UCR rates.41 One of these cases, a class action suit brought by New Jersey consumers against the health insurance carrier Health Net, was settled in August, 2008. Under this settlement, Health Net agreed to provide $215 million to policyholders who had been under-reimbursed for out-of-network health care services. Health Net also agreed to temporarily increase its Ingenix-derived reimbursement amounts by 14.5%, and to stop using the Ingenix data as soon as possible.42 The federal judge approving the
Exhibit C, at 18.
37 American Medical Association, et al. v. United Healthcare Corporation, et al., S.D.N.Y. (No. 00 Civ. 2800).
38 AMA Alleges HMO Uses Faulty Data In Reimbursements, Wall Street Journal (Mar. 16, 2000).
39 Settlement Agreement Dated as of January 14, 2009, American Medical Association, et al. v. United Healthcare Corporation, et al., S.D.N.Y. (No. 00 Civ. 2800 ); See also, UnitedHealth Settlement Near, but Faces a Protest, New York Times (Jan. 16, 2009).
40 Memorandum and Order (May 7, 2009), American Medical Association, et al. v. United Healthcare Corporation, et al., S.D.N.Y. (No. 00 Civ. 2800).
41 In addition to the cases discussed in this section, See, e.g., Weintraub v. Ingenix, Inc. (C.A. No. 3:08-654) (D. Ct.) (transferred to D. N. J. on Apr. 8, 2009) and Cooper v. Aetna (C.A. No. 2:07-3541) (D. N.J.).
42 McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 468 (D.N.J. 2008).
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settlement determined that the Ingenix database products suffered from “serious flaws” due to the way they collected and “scrubbed” medical claims data.43
In Davekos v. Liberty Mutual, a case involving a dispute over the amounts an insurance company paid for chiropractic services, a Massachusetts appeals court ruled that Ingenix data lacked the “requisite indicia of reliability to be admissible” in Massachusetts courts.44 The court reached this conclusion on the basis of evidence showing that Ingenix did not verify the accuracy or completeness of the data it used to develop its database products.45
B. The New York Attorney General’s Investigation
The Ingenix database products were also the subject of an investigation by the New York Attorney General’s office. In February 2008, Attorney General Andrew Cuomo announced his office was conducting “an industry-wide investigation into a scheme by health insurers to defraud consumers by manipulating reimbursement rates.”46
On January 13, 2009, the same day it was announced that UnitedHealth and Ingenix would move the databases to a new non-profit entity,47 the Attorney General’s office issued a report summarizing the results of its year-long investigation. The report concluded that there was a conflict of interest between Ingenix and the insurance industry, and that this conflict resulted in under-payments to New York consumers. After comparing the Ingenix “usual, customary, and reasonable” (UCR) rates with insurance claims actually filed in New York for doctor office visits, the Attorney General’s office found that insurers systematically under-reimbursed New York consumers by up to 28%.48
The New York Attorney General’s office has subsequently entered into written settlements with 11 other insurers doing business in the State of New York, including insurance giants Aetna, CIGNA, and Wellpoint. All of these insurance carriers have agreed to discontinue using the Ingenix database to determine UCR reimbursement rates, and to contribute to the new non-profit UCR database.49
43 Id.
44 Davekos v. Liberty Mutual, 2008 Mass.App. Div. 32, 2009, WL 241613 (Mass. App. Div.).
45 Id.
46 Attorney General of New York, Cuomo Announces Industry-Wide Investigation into Health Insurers’ Fraudulent Reimbursement Scheme (Feb. 13, 2008) (Online at http://www.oag.state.ny.us/media_center/2008/feb/feb13a_08.html).
47 See Part II.D above.
48 State of New York, Office of the Attorney General, Health Care Report: The Consumer Reimbursement System is Code Blue (Jan. 13, 2009), 20 (Online at http://www.oag.state.ny.us/bureaus/health_care/HIT2/pdfs/FINALHITIngenixReportJan.13,%202009.pdf).
49 The other insurance companies entering into these settlements were: MVP Health Care, Inc., HealthNow New York, Inc., Independent Health Association, Inc., Excellus Health Plan, Inc., and Capital District Physicians’ Health Plan Inc., Guardian Life Insurance Company of America, and Group Health
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On June 19, 2009, as a result of the Attorney General’s investigation, the New York Department of Insurance issued a new regulation requiring insurance companies operating in New York to use “usual and customary” reimbursement schedules that accurately reflect market rates. The regulation prohibits insurance companies from obtaining usual and customary (UCR) data from any individual or company “with a pecuniary interest in the development or use of the UCR schedule, including any insurer, health maintenance organization, medical association, or health care provider