Business Insurance Magazine

January 19, 2009

by Joanne Wojcik

Settlement over reimbursement rates could hit employers

NEW YORK-Employers likely will pay more for health care as a result of an agreement reached last week between New York’s attorney general and UnitedHealth Group Inc.

The agreement will see UnitedHealth spin off its Ingenix Inc. subsidiary’s databases used by most of the nation’s health insurers and third-party administrators to determine reimbursement rates for out-of-network providers. In a separate agreement, Aetna Inc. agreed to pay $20 million to help fund the new system.

If the agreement results in higher reimbursement rates for doctors, as is expected, self-insured employers will see their portion of out-of-network payments grow, while employers with fully insured plans likely will see their premiums increase as insurers pass on their increased costs to them, benefit experts say.

However, a component of the agreement that also requires the database’s new purveyor to establish a consumer Web site disclosing out-of-network provider pricing and provide health care education services could encourage plan members to become more conscientious medical consumers, some benefit experts hope.

UnitedHealth also has agreed to pay $350 million to settle a lawsuit filed in 2000 by patients and doctors over alleged underpayments dating back to 1994.

Attorney General Andrew Cuomo also reached an agreement on Thursday with Hartford, Conn.-based Aetna, to help establish the independent database that will be used for calculating out-of-network reimbursement rates.

The agreements stem from an investigation the attorney general launched last February into the Eden Prairie, Minn.-based Ingenix’s Prevailing Healthcare Charges System and its Medical Data Research products, which are used by the vast majority of the nation’s health insurers to calculate out-of-network reimbursements based on usual, customary and reasonable charges for medical expenses.

Even though the agreement was reached in New York, it affects out-of-network payments by health plans nationwide.

The investigation concluded that the Ingenix databases “intentionally skewed usual and customary rates downward through faulty data collection, pooling procedures and lack of audits,” and that the rate of underpayment ranged from 10% to 28%. The attorney general also found that UnitedHealth’s ownership of the databases created a conflict of interest.

Under the agreement reached on Jan. 13 with UnitedHealth, the Minnetonka, Minn.-based insurer will turn over operations of both Ingenix databases to a nonprofit company that will contract with a university to develop and operate an independent UCR database derived from claims and other relevant billing information. In addition, UnitedHealth will pay $50 million to finance development of the replacement database.

In the meantime, UnitedHealth and the rest of the health insurance industry can continue to use the Ingenix databases. However, UnitedHealth must disclose its affiliation with Ingenix on its Web site.

Although the agreement was hailed by Mr. Cuomo, UnitedHealth and health care providers as a victory for consumers, it is being viewed by the payer community as a win for doctors who have been resisting cost-containment efforts by employers and insurers.

“Our agreement with UnitedHealth removes the conflicts of interest that have been inherent in the consumer reimbursement system,” Mr. Cuomo said at a Jan. 13 press conference in Manhattan, urging other insurers using the Ingenix system contribute to finance the new system. “This has been an industry-wide problem, and it demands an industry-wide reform,” he said.

Aetna, an Ingenix user, responded later in the week by announcing it would put $20 million into development of the new database.

In a statement, Thomas L. Strickland, executive vp and chief legal officer of UnitedHealth, said the company is “committed to increasing the amount of useful information available in the health care marketplace so that people can make informed decisions, and this agreement is consistent with that approach and philosophy.”

“It’s a huge victory for consumers,” said Dr. Nancy Nielsen, president of the American Medical Assn. “It’s very clear that the doctors were underpaid. It misled patients and drove a wedge between them and their doctors.”

But Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans in Washington, said the agreement sheds light “on one of the root causes of rising medical costs in America: wide variations in charges by out-of-network providers across the country.”

“Health plans create provider networks to ensure that patients have affordable access to a wide choice of high-quality health care providers. Enabling out-of-network providers to charge whatever they want would create a powerful incentive for providers to opt out of networks altogether, forcing consumers and employers to pay significantly higher health care costs,” Ms. Ignagni said in a statement.

Ed Kaplan, national health practice leader at Segal Co. in New York, agreed, saying that “doctors used to bait the system by putting inflated charges so that it would affect UCR the next year. Ingenix had a way to smooth out those inflated charges.”

Although “people were definitely uncomfortable with Ingenix being owned by UnitedHealth,” if the new database is “heavily influenced by providers, that would be worse than if it is owned by an insurer,” Mr. Kaplan said.

“The biggest beneficiary of this is going to be the doctors,” said Bruce Boissonault, president and chief executive officer of the Niagara Health Quality Coalition in Williamsville, N.Y. “Reasonable and customary could be whatever somebody wants to charge. Good may come out of this, but there’s also a risk that the cure could be worse than the disease.”

“From an employee point of view, it’s a good thing. But not for employers,” said Tom Billet, a senior consultant at Watson Wyatt Worldwide in Stamford, Conn.

Laurel Pickering, president of the New York Business Group on Health, said her membership “thinks it’s a good thing for this database to be removed from Ingenix…but we have concerns it might increase costs for employers.”

Helen Darling, president of the National Business Group on Health in Washington, expressed concerns that employers’ health care costs could grow, but said the consumer Web site could have a tempering effect on employer costs.

“It might boost consumerism to a certain extent,” she said. “Consumers may stay in network” because “they will see how much they’re being charged.”

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