02/14/08 - Inquiry Set on Health Care Billing

February 14, 2008
Reed Abelson
The New York Times

It is a common medical puzzler. The benefits statement arrives from the insurance company, saying that although the doctor has charged, say, $200 for that recent office visit, only $80 is covered -- and the consumer is obliged to pick up the balance.

That gap may be too big, according to critics of the health insurance industry, whose ranks were joined Wednesday by the New York State attorney general, Andrew M. Cuomo.

Mr. Cuomo announced a sweeping investigation into whether health insurance companies have systematically forced patients to pay more than they should when using doctors and hospitals outside their insurer's networks.

As part of the investigation, Mr. Cuomo said he intended to sue UnitedHealth Group, the state's largest medical insurer and one of the nation's biggest.

''We believe there was an industrywide scheme perpetuated by some of the nation's largest health insurers to deceive and defraud consumers,'' Mr. Cuomo said at a news conference on Wednesday.

Mr. Cuomo, who has conducted a number of recent inquiries aimed at health insurers, said that the practice had gone on for about a decade, potentially adding hundreds of millions of dollars to the out-of-pocket medical expenses of insured consumers nationwide.

UnitedHealth said it had done nothing wrong and was cooperating with the attorney general's inquiry.

The investigation, which raises issues that doctors' groups and some other critics have brought up, is likely to place greater scrutiny on health insurers. And it comes at a time when the industry is reporting big profits but the rising cost of medical insurance has left an estimated 47 million people uninsured in the United States.

''The larger issue is health plans make an awful lot of money,'' said Sheryl R. Skolnick, a health care analyst for CRT Capital Holdings in Stamford, Conn. If insurers are found to have underpaid, she said, they could end up having to make big restitutions to consumers.

The inquiry by Mr. Cuomo focuses on a fundamental industry practice: how insurers determine what portion of a doctor or hospital bill they will pay if a patient receives care from a provider not under contract to the insurer.

Individuals who use doctors outside the insurer's networks are generally required to pay a certain percentage, typically 20 percent, of ''reasonable and customary'' charges -- a calculation that is supposed to reflect the prevailing market rate in a given geographic area for a doctor visit or other services.

But Mr. Cuomo contends that the industry has consistently underestimated the prevailing market rates, forcing insured patients to pay a greater portion of their own medical bills than their insurance policies are supposed to require.

Individuals generally pay higher premiums for the privilege of being able to select doctors or hospitals outside the network, Mr. Cuomo said.

''You could have paid less and be limited to the in-network doctors,'' he said.

Among those with employer-provided health benefits, about three out of four workers, or 54.2 million people, were covered by insurance plans offering out-of-network options, according to a 2007 survey by the Kaiser Family Foundation, a health care research group.

From the insurance industry's standpoint, the out-of-network rate system is meant to make sure an insurer is not responsible for paying high medical bills generated by extremely expensive doctors.

The attorney general 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.

He said he had also issued subpoenas to 16 insurers, including Aetna, Cigna and Empire Blue Cross and Blue Shield; all of them, like UnitedHealth, do business in New York State.

''We believe Ingenix systemically reduced the amount of money consumers should have been reimbursed,'' Mr. Cuomo said.

UnitedHealth, based in Minneapolis, said it believed that the Ingenix data was accurate. The company said in a statement that it was ''committed to fair and appropriate payment for physicians, the state's other health care providers and consumers.''

UnitedHealth said the data produced by Ingenix is used by insurers to help determine what they will pay when customers go out of network. The company said the unit analyzes 1.3 billion charges billed, collected from more than 100 health plans, to come up with its figures.

The company rejects charges that seem far from the norm and subjects the information to a ''strong validation process,'' according to a UnitedHealth spokesman, Don Nathan. The information gives insurers ''a snapshot of current charges in a geographic area'' that they can use to determine what is a reasonable and customary fee for a service, he said.

Aetna, Cigna and Empire said they were cooperating with the investigation.

Empire, a unit of WellPoint, also said that if the information was inaccurate or miscalculated, the company ''would consider any and all remedies available to protect the interests of our members, their families, our group customers and providers in the New York marketplace.''

Mr. Cuomo said his office had compared the prevailing market rate for a routine doctor's visit with the amount Ingenix had calculated as reasonable and customary. While doctors in the metropolitan New York City area typically charged $200 for an office visit, he said, Ingenix calculated the rate at only $77. Under a typical plan, the insurer would pay 8o percent of the $77, or only $62. The patient would be responsible for covering the remaining $138 balance.

UnitedHealth disputes the numbers Mr. Cuomo provided, saying Ingenix calculates the range of prices for those office visits as $125 to $300. The company said it did not know how Mr. Cuomo's office came up with its figures. Members of Mr. Cuomo's staff declined to describe the method.

Mr. Cuomo contends that Ingenix and some of the insurers manipulate the information to arrive at artificially low rates. He said the insurers had an inherent conflicted because it was in their interest to understate the true rates.

''There is no disclosure; there's no transparency; there's no accountability,'' said Mr. Cuomo, saying his office began investigating the matter after receiving complaints from consumers.

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.

The way that insurers determine the prevailing market rates for medical services has long been a subject of controversy. The American Medical Association, for example, has a pending eight-year-old lawsuit that makes similar claims.

The practice ''is primarily unfair to consumers,'' said Dr. Nancy H. Nielsen, the president-elect of the medical association, who was present at the attorney general's news conference. Consumer advocacy groups were also present.

Peter V. Lee, a health policy expert at the Pacific Business Group on Health, an employers' group, said, ''The whole mythology that there is a usual and customary charge has been part of what has made insurance hard to understand for patients as well as doctors.''

The concept of ''customary and reasonable fees'' as a way to pay doctors began more than three decades ago, recalled Robert Laszewski, an industry consultant in Washington and former insurance executive.

Back then, the figures were based on the median of what doctors in a local area were actually charging, Mr. Laszewski said, but insurers realized the system gave doctors an incentive to raise their fees to drive up the median numbers. ''It was very ineffective in controlling health care costs,'' he said.

Insurers generally turned to other payment systems, like negotiating prices with groups of doctors. But the industry, through a health insurance trade association, continued to calculate the reasonable and customary data, until UnitedHealth acquired the operation in 1998.

In recent years, as consumer dissatisfaction with many health maintenance organizations has helped make out-of-network options popular, the data has been important in determining the portion of medical bills that insured patients pay.

The main question now is what patients are told about what their health plans will pay when they go out of network, said William S. Custer, an associate professor at Georgia State University, who studies health insurance. ''What did you think you were buying is exactly the issue,'' he said.

Some of the stocks of insurers fell on the news, with UnitedHealth closing at $46.97, down $1.30, or 2.7 percent.

Acknowledging what he called the headline risk, Doug Simpson, a Merrill Lynch analyst, predicted in a research report Wednesday that consumers would end up paying more, no matter the end result of the investigation.

''We believe to the extent that regulators wish to raise provider payments for out-of-network care,'' Mr. Simpson wrote, ''there will be a corresponding increase in the cost of coverage.''