In the private health insurance industry, Ingenix has been the predominant source of information about the market price of medical services. While the industry has long represented the “usual and customary” estimates of medical charges compiled by Ingenix as “independent” and objective, Ingenix is a subsidiary of one of the country’s largest insurance companies, UnitedHealth Group. Moreover, the insurance industry both contributes medical charge data to Ingenix and purchases Ingenix’s products. This close, conflicted business relationship between Ingenix and the health insurance industry existed for more than a decade before industry officials publicly acknowledged that it created the appearance of a conflict of interest.
A. The Business Relationship Between Ingenix and Individual Health Insurance Companies
In the words of one health care CEO, insurance companies’ method of calculating usual and customary costs has been “the great black box of the healthcare industry.”14 Documents produced to the Committee during this investigation shine some light into this black box by providing details about the business relationship between Ingenix and its insurance industry partners.
The business relationship was formed when the two parties signed a “Master Services and License Agreement.”15 Under this agreement, an example of which is attached to this report as “Exhibit A,” Ingenix agreed to provide the insurer (the “Customer”) with the software and
MDR] are used to guide health insurers in determining reasonable fees for medical services. Combined, the two products have more than 50% of the market, said Melissa Tzourakis, Ingenix director of product management for benchmarking database products.”).
12 See McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 464 (D.N.J. 2008). According to Ingenix, the PHCS data modules are developed using “actual” data when sufficient amounts of claims data are available for a particular service delivered in a particular area. MDR data modules are based on actual data, but are “derived” from the application of a set of relative values and conversion factors.
13 Letter from William J. Marino, President and CEO, Horizon Blue Cross Blue Shield of New Jersey, to Senator John D. Rockefeller IV (Apr. 23, 2009).
14 The Fuzzy Math of Health Insurance, When an Insurer’s Idea of Usual, Reasonable, and Customary Comes Up Short, You’re Stuck Paying, CNNMoney (Aug. 30, 2005).
15 Master Services and License Agreement Between Ingenix, Inc. and [Insurer] (July 7, 1999) (hereinafter “Exhibit A”).
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data it needed to calculate UCR rates for various services. In exchange, the Customer agreed to pay Ingenix for the software and data, and agreed not to share them with third parties.16
Ingenix and its customers executed actual purchases of data and software through subsequent “Product Schedules.” In a typical Product Schedule, an example of which is attached to this report as “Exhibit B,” the customer purchased a license to particular database “modules,” and agreed to pay a certain annual fee for access to each module. Customers’ fees were based on the size of their businesses. In the case of the PHCS products, the fees were based on the number of persons covered by the insurer (“covered lives”), while MDR fees were calculated based on claims volume. In Exhibit B, a Customer reporting 3.1 million covered lives paid Ingenix $120,000 in annual fees for three PHCS modules.17
In the Product Schedule document, the Customer once again agreed to a number of restrictions on the use of the data, including a provision stating that “Customer may disclose to providers or clients a single fee per code from the Data, but only as required and necessary in the claim administration and review process.”18 This provision restricting insurance carriers’ ability to share information about the Ingenix data helps explain the frustration many doctors and consumers experienced when they tried to get more information about the products. For example, AMA President Dr. Nancy Nielsen testified that when doctors asked insurers how they had calculated their “usual and customary” rates, they were told that information was “proprietary.”19
Anticipating legal challenges to the reliability of the data from “aggrieved third parties,” Ingenix also promised to provide customers with technical and legal assistance in the case of a “Database Challenge.” At the same time Ingenix promised to provide legal support to defend attacks on the integrity of its data, however, Ingenix also disclaimed responsibility for the data. A paragraph labeled, “Information Tool,” said the following:
The Data is provided to Customer for informational purposes only…Any reliance upon, interpretation of and/or use of the Data by Customer is solely and exclusively at the discretion of Customer. Customer’s determination or establishment of an appropriate reimbursement level or fee is solely within Customer’s discretion, regardless of whether Customer uses the Data.20
16 Id.(“Customer shall have no right to allow any person or entity who is not a party to this Agreement to access the Software or Data directly or indirectly in any way, at Customer’s site or via remote communication methods.”)
17 Prevailing Healthcare Charges System (PHCS) Product Schedule Agreement Between Ingenix, Inc., and [Insurer] (May 1, 2005) (hereinafter “Exhibit B”).
18 Id.
19 March 2009 Health Care Hearings, Testimony of Dr. Nancy Nielsen.
20 Exhibit B.
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B. Data Contribution Agreements Between Ingenix and Insurers
Insurers could receive large discounts on the Ingenix database products by participating in Ingenix’s “Data Contribution Program.” Invoices reviewed by Committee staff show that insurers could receive “data credits” entitling them to discounts of more than 50% if they submitted medical claims data to Ingenix. According UnitedHealth Group CEO Stephen Hemsley, about one hundred different parties contributed data to Ingenix.21 As Exhibit B demonstrates, data submitters agreed to submit “non-manipulated, complete, useable data for all covered members for all submitted claims.” They also agreed to the following data submission rules:
Customer shall include all data fields that Customer currently collects that are required in the data contribution format, and Customer shall not manipulate or present the data so as to provide only a particular subset of its data. Customer will submit its full claims experience for the number of total contracted covered lives.22
In the course of the legal challenges and investigations into the Ingenix database products over the past decade, a number of doubts have been raised about whether Ingenix data submitters followed these rules, and whether Ingenix effectively enforced them. In an expert report submitted to a New Jersey federal court in 2006, a statistical expert testified that insurance companies did not contribute complete sets of their medical claims data to Ingenix, and that some data contributors performed “scrubs” that skewed the contributed data downwards.23
According to this expert testimony, which is attached as “Exhibit C” to this report, Aetna, Ingenix’s single largest data contributor, eliminated (“pre-scrubbed”) the highest 20% of valid medical charges before sending its claims data to Ingenix.24 Once the contributed data arrived at Ingenix, the company employed yet another “scrubbing” process that again had the effect of inappropriately eliminating valid high charges from the database.25 The overall effect of these flawed statistical methods was to make the distribution of medical charges appear lower than it was in the actual marketplace.
When Chairman Rockefeller directly asked the CEO of Ingenix, Mr. Andy Slavitt, whether he was concerned that data contributors were submitting incomplete, “pre-scrubbed”
21 March 2009 Health Care Hearings, Testimony of Stephen Hemsley. In a Power Point presentation shown at a meeting of the Financial Solvency Standards Board of the California Department of Managed Health Care in April 2005, Ingenix represented that it had nearly 200 data contributors, 180 of which contributed California claims data. Ingenix Benchmarking Products Power Point Presentation (April 2005) (Online at: http://www.dmhc.ca.gov/aboutTheDMHC/org/boards/fssb/notes/050419ipp.pdf).
22 Exhibit B.
23 Plaintiffs’ Supplemental Expert Report Dated June 15, 2006, Bernard R. Siskin, Ph.D., McCoy v. HealthNet, Inc. (D N.J.) (Docket No. 03-CV-1801) (June 15, 2006). (hereinafter “Exhibit C”).
24 Id.
25 Id.
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data to Ingenix, Mr. Slavitt responded that, “we run a number of analyses to check and make sure” that the data is accurate and complete.”26
Mr. Slavitt’s statement is not entirely consistent with testimony that Ingenix’s Manager of Research and Development for the PHCS and MDR products, Ms. Carla Gee, has provided in court proceedings over the past few years. In these proceedings, Ms. Gee testified that while Ingenix performed occasional audits of the data, her firm was ultimately “at the mercy” of the insurance providers to submit accurate and complete data.27 She also conceded that:
Ingenix has never tested its results to determine if its statistical conclusions bear any relationship to the actual high, low, median or 80th percentile or actual marketplace CPT [Current Procedural Terminology] code service rates charged by health care providers in any given area.28
As will be discussed in Section IV below, Committee staff have reviewed new evidence demonstrating that another large data contributor to Ingenix did not submit accurate and complete claims data to Ingenix. The effect of this improper data manipulation – which Ingenix either allowed to occur or neglected to discover – was to skew reimbursement rates downwards and harm consumers.
C. How Ingenix Products Were Used to Determine Reimbursements
The payment “modules” Ingenix sold to the insurance industry provided information on the prevailing costs of specific medical services in specific geographic zip code groups (“geozips”). The modules do not provide subscribers with a single average price. Instead, they present a statistical distribution of the varying market prices Ingenix claims that providers charge in a particular geozip area.
The standard module starts from the mid-point of the distribution (the 50th percentile) and provides charges at regular intervals up to the highest point in the distribution (the 100th percentile). On its website, Ingenix provides the following examples of usual and customary costs in its 301 geozip area.
CPT Code29 Description 50th 60th 70th 75th 80th 85th 90th 95th
45378
Diagnostic Colonoscopy
$764
$783
$859
$887
$907
$939
$1,008
$1,105
71020
Chest X-Ray
$102
$103
$106
$107
$107
$107
$113
$122
26 March 2009 Health Care Hearings, Testimony of Andy Slavitt, CEO, Ingenix, Inc.
27 See Davekos v. Liberty Mutual, 2008 Mass.App. Div. 32, 2009, WL 241613 (Mass. App. Div.).
28 Id.
29 Ingenix employs the American Medical Association’s proprietary “Current Procedural Terminology” (CPT) coding system to describe the services rendered.
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The general practice of insurers has been to pay consumers an allowance equal to a certain percentile level provided in the Ingenix module. For example, many insurers promise to reimburse consumers at the 80th percentile for out-of-network services. If a consumer chooses to go out of network to receive a colonoscopy from a doctor located in Geozip 301, the insurer pays $907 for the service, no matter what the doctor actually charges for the colonoscopy. The consumer pays the co-payment, co-insurance, or deductible due on the $907 allowance, and then pays 100% of the difference between the $907 allowance and the doctor’s actual charge.
The key assumption behind this method of reimbursing out-of-network charges was that the Ingenix tables presented the accurate distribution of medical charges in a given area. Evidence reviewed during this investigation and in other inquiries show that this assumption was unfounded. The Ingenix tables consistently underestimated the distribution of medical charges and, as a result, consumers ended up paying a higher portion of the cost of their health care than they owed under the terms of their insurance coverage.
D. Health Insurers Acknowledge Their Conflict of Interest with Ingenix
Since Ingenix purchased the two leading medical charge databases a decade ago, critics have charged that Ingenix’s role as the only source of UCR data conflicted with its business status as a wholly-owned subsidiary of UnitedHealth Group. UnitedHealth and the other insurance companies that contributed data to Ingenix and purchased Ingenix products had a strong financial interest in keeping reimbursement rates low. Linda Lacewell, a senior attorney from the New York Attorney General’s office, described to the Committee how her office became aware of this conflict:
The natural question then became, Who is Ingenix? And on that question, when you look behind the curtain of this oracle of usual and customary rates, one finds UnitedHealth Group, the second largest insurer…in the United States, because Ingenix is a wholly-owned subsidiary of UnitedHealth Group, making this essentially a closed-loop system of the health insurance industry collecting the information among itself, pooling the information together, all relying on the same rate information, a system that is impenetrable to the consumer.30
Ms. Lacewell also testified that insurers failed to disclose this conflict to consumers. Insurers did not inform consumers that the source of their UCR data was a company owned and controlled by the insurance industry, and they sometimes even “affirmatively misstated” the source of their UCR numbers, saying they came from “independent” sources.31
On January 13, 2009 - more than ten years after it purchased the competing PHCS and MDR databases - UnitedHealth Group publicly stated for the first time that there was an “inherent conflict of interest” in its business relationship with Ingenix, and signed an agreement
30 March 2009 Health Care Hearings, Testimony of Linda Lacewell, Counsel for Economic & Social Justice, Head of the Healthcare Industry Taskforce, State of New York, Office of the Attorney General.
31 Id.
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with the New York Attorney General to shut down the PHCS and MDR databases.32 Under the agreement, the companies promised to contribute $50 million to start a new non- profit entity that would create and administer an independent medical claims database. The new database
will be housed at a New York academic institution and will make its price data available to the public through a website.33
UnitedHealth’s CEO, Stephen Hemsley made a similar expression of regret when he testified before the Committee on March 31, 2009. He said:
We have a number of regrets related to this. We regret we did not recognize the appearance of this conflict sooner. We regret that we were not more forceful in our broad disclosures with respect to the relationship of this database relative to other aspects of our company. And we regret that there has been any breach in terms of the perception of trust in terms of the consumers' participation in this.34
Andy Slavitt, the CEO of Ingenix, told the Committee:
There is no denying that Mr. Hemsley’s company owns my company and another company that uses our product. And it is clear that we were myopic and being perhaps so analytical about defending our integrity that we missed the bigger picture