Mark P. Scherzer Health Insurance Law Blog on Lawyers.com

The patient, a covered dependent child with developmental problems, had a series of specialized and expensive surgeries over the course of a 2-year period.  Because of the specialized care required, the family elected to have the child treated by out-of-network providers. The family's health plan provided out-of-network coverage at 80% of UCR (with the family responsible for a 20% co-pay), but also provided that the family must first pay an annual $1,000 deductible, and that additional out-of-pocket costs would be capped annually at a $2,500 maximum.  The family reasonably understood the plan to have an annual $3,500 cap for out-of-pocket costs (the $1,000 deductible, plus 20% of out-of-network charges up to, but no more than, an additional $2,500).  After that, the plan would pay 100% of all out-of-network charges for the remainder of the year.  Plan payments were made more or less in accordance with the family's expectations. 

 

A year or two later, however, the family was shocked to receive a letter from the insurance company notifying them that it had previously failed to apply the UCR rate and that now, having done so, the family was liable for nearly $60,000 which the insurance company had allegedly "overpaid."  When the $3,500 annual maximum (which would seem to limit the family exposure, at most, to $7,000 for a two year period) was pointed out to the insurance company, it argued that its obligation to pay 80% of out-of-network charges at first, and 100% of such charges after the $3,500 out-of-pocket maximum, was limited to its very low UCR.  Consequently, the additional $60,000 constituted "excessive" fees, for which the family would have been expected - under normal circumstances - to haggle over with their physicians and hospital.

 

In this case, the situation was further complicated because the insurance company had not made its UCR determination at the time it originally processed the claims, so that it had already paid the physicians and hospital.  Instead of going after the health care providers and asking them to repay their purportedly "excessive" fees, the insurance company, as noted above, instead sought reimbursement directly from the family.  Worse, in addition to requesting reimbursement immediately, the insurance company began withholding payment on current medical claims as a way of recouping the purported overpayment.     

The Attorney General’s investigation found 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.

....Cuomo’s investigation also found a clear example of the scheme: United insurers knew most simple doctor visits cost $200, but claimed to their members the typical rate was only $77.  The insurers then applied the contractual reimbursement rate of 80%, covering only $62 for a $200 bill, and leaving the patient to cover the $138 balance.

The United insurers and many other health insurance companies relied on the Ingenix database to determine their “reasonable and customary” rates.  The Ingenix database used the insurers’ billing information to calculate a “reasonable and customary” rate for individual claims by assessing how much a similar type of medical service would typically cost, generally taking into account the type of service, physician, and geographical location.  However, the investigation showed that the “reasonable and customary” rates produced by Ingenix were remarkably lower than the actual cost of typical medical expenses.

The United insurers and Ingenix are owned by the same parent corporation, United HealthGroup.  When members complained their medical costs were unfairly high, the United insurers hid their connection to Ingenix by claiming the rate was the product of “independent research.”  The Attorney General’s notice to United expressed concern that the company’s ownership of Ingenix created a clear conflict of interest because their relationship gave Ingenix an incentive to set rates that benefited United and its subsidiaries.  

....Cuomo continued, “The lack of accuracy, transparency, and independence surrounding United’s process for setting a ‘reasonable and customary rate’ is astounding.  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.”

• New York Attorney General Press Release (Feb. 13, 2008) 
• New York Times (Feb. 13, 2008): "New York Investigates Medical Rate Setting"
• Kaiser Family Foundation - Daily Health Policy Report (Feb. 14, 2008): "New York State Attorney General Launches Investigation Into Whether Health Insurers Systematically Overcharge Patients for Using Out-of-Network Providers"