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Health Insurance Companies Defrauding Consumers Critics Charge

Feb 18, 2008 | Parker Waichman Alonso LLP

Critics of the health insurance industry say the gap between what a physician charges and what is reimbursed may be too big.  In response, New York State Attorney General Andrew Cuomo is suing UnitedHealthGroup—the nation’s largest health insurer—and Ingenix, its subsidiary.  Cuomo also launched an industry-wide investigation into health care reimbursements saying that some companies have been underpaying customers for a decade and that UnitedHealthGroup, in particular, manipulated data to cheat consumers.

The way insurers determine prevailing market rates for medical services has long been a subject of controversy; even the American Medical Association has a pending eight-year-old lawsuit.  The practice “is primarily unfair to consumers,” said Dr. Nancy H. Nielsen, president-elect of the medical association.  Cuomo said, “We believe there was an industry-wide scheme perpetuated by some of the nation’s largest health insurers to deceive and defraud consumers.”  Cuomo’s investigation comes when the industry is reporting huge profits while the rising cost of medical insurance has left about 47 million uninsured in the US.  “The larger issue is health plans make an awful lot of money,” said Sheryl R. Skolnick, a health care analyst for CRT Capital.  If insurers are found to have underpaid, they could end up having to make big restitutions to consumers.  

Cuomo’s investigation focuses on how insurers determine what is reimbursed when a patient receives out-of-network care.  Those using out-of-network providers must pay around 20 percent of what the insurer deems “reasonable and customary,” a calculation meant to reflect prevailing market rates by geographic area for medical services.  Cuomo contends the industry has consistently underestimated prevailing market rates, forcing insured patients to pay more of their own medical bills than their policies are supposed to require.

Cuomo said he planned to sue UnitedHealth and some of its subsidiaries, accusing them of deceptive practices and consumer fraud.  United Health owns Ingenix, the company used by the industry to calculate reasonable and customary rates.  “We believe Ingenix systemically reduced the amount of money consumers should have been reimbursed,” Cuomo said.  Cuomo also issued subpoenas to 16 insurers, including Aetna, Cigna, and Empire Blue Cross and Blue Shield who all conduct business in New York State.   Cuomo’s office compared the rate for a routine doctor’s visit with what Ingenix calculated as reasonable and customary.  Doctors in the metropolitan New York City area typically charged $200 per visit; Ingenix calculated the rate at $77.  Under a typical plan, the insurer would pay 8o percent—$62—leaving the patient responsible for $138.

Cuomo contends Ingenix and others manipulate information to arrive at artificially low rates, adding that insurers had an inherent conflict because it was in their interest to understate the true rates.  “There is no disclosure; there’s no transparency; there’s no accountability,” said Cuomo.  He also said patients who belonged to a UnitedHealth plan were also not told that the company generating the rate data was a unit of the insurer.  Mr. Nathan, the UnitedHealth spokesman, said, “We don’t think there is a conflict of interest,” because the data is supplied to Ingenix by various insurers.