New York AG levies charges on insurers' reimbursement scheme

By Bernie Monegain, Contributing Editor, and Fred Bazzoli, Editor

A six-month government investigation has led to charges that a company with an extensive database of healthcare billing information is using defective and manipulated numbers that are then used by most major health insurance companies to set reimbursement rates.

New York Attorney General Andrew M. Cuomo revealed the results of his investigation last month and announced that he is conducting an industry-wide investigation into reports of a scheme by health insurers to defraud consumers by manipulating reimbursement rates.

Cuomo contends the center of the scheme involves Ingenix, the largest provider of healthcare billing information in the country. The investigation points to the possibility that Ingenix serves as a conduit to supply rigged data to the largest insurers in the country, he charged.

Cuomo said he issued 16 subpoenas to insurance companies, including Aetna, CIGNA and Empire BlueCross BlueShield, and he intends to file suit against Ingenix Inc., its parent company, UnitedHealth Group, and three additional subsidiaries.

United and its Ingenix subsidiary dispute the charges and say they are cooperating with the attorney general’s office in its investigation.

With the United insurers' health plans, members pay a higher premium for the right to use out-of-network doctors. In exchange, the insurers promise to cover up to 80 percent of either the doctor's full bill or the "reasonable and customary" rate, depending upon which is cheaper.

The investigation charged that by distorting the "reasonable and customary" rate, the United insurers were able to keep their reimbursements artificially low and force patients to absorb a higher share of the costs.

For example, the investigation found that United insurers knew most simple doctor visits cost $200, but told their members that the typical rate was only $77. The insurers then applied the contractual reimbursement rate of 80 percent, covering only $62 for a $200 bill and leaving the patient to cover the $138 balance.

"When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need," Cuomo said. "United's ownership of Ingenix, coupled with the inherent problems with the data it is using, clearly demonstrate a broken reimbursement system designed to rip off patients and steer them towards in-network doctors that cost the insurer less money."

The United insurers and Ingenix are owned by the same parent corporation, United HealthGroup. Cuomo's notice to United expressed concern that the company's ownership of Ingenix creates a clear conflict of interest because their relationship gives Ingenix an incentive to set rates that benefit United and its subsidiaries.

United HealthGroup issued a statement saying it was working with the attorney general’s office and defending its database and practices.

“The reference data is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the healthcare industry. We believe these reference tools add substantial value to the healthcare system by providing all participants with a transparent, consistent, and neutral line of sight into the healthcare market, its costs and performance,” the statement said. “Health plans and other healthcare payers use these reference tools to independently negotiate their own reimbursement schedules, establish fees for out-of-network care, negotiate provider service contracts and review claims for their members and consumers.”

Founded in 1996, Eden Prairie, Minn.-based Ingenix employs more than 4,500 people and numbers more than 250,000 clients worldwide. Its businesses include Healthia Consulting and the Lewin Group (purchased last year), ENS, Claredi, HWT, i3 and IHCIS.

Dave Ostler, executive vice president of Ingenix, said his company “feels confident in the soundness of our data, and we’re helping (the attorney general’s office) understand the prevailing billing information we have. We’re comfortable with the methodology behind it and how it works. We’re confident that it’s valid and unbiased.”

Ingenix’s database, which has roots back in the 1970s, is built with “real-world data-driven benchmarks, has more than 100 data contributors and comprises 1.3 billion records at any one time,” Ostler said. “We’re not sure where the information came from that the attorney general used, but it doesn’t match up with our data.”

The American Medical Association's president-elect, Nancy Nielsen, MD, said, "The investigation launched today by New York Attorney General Andrew Cuomo calls into question the validity of a system that health insurers have used for years to reimburse physicians and their enrolled members. Patients have a right to expect fair and accurate payment for services promised by health insurers.  The AMA greatly appreciates the Attorney General's interest and leadership in protecting consumers, and we offer our full cooperation in any effort to hold UnitedHealth accountable to New York state laws."