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US: UnitedHealth Faces Suit Over Payment System

February 13th, 2008

The New York attorney general said his office plans to sue UnitedHealth Group Inc. as part of a broader investigation into the way the health insurance industry sets payment rates for hospitals and doctors outside of their networks.

At the center of the investigation is a common practice among health insurers. While they typically pay in-network hospitals and physicians a negotiated fee for medical claims, out-of-network providers are reimbursed according to "usual and customary" or "reasonable" charges, or what insurers have determined is the going rate for a given procedure or service in that area.

Doctors and hospitals have long complained that the method health plans use is opaque and sets their reimbursements artificially low. When that usual and customary charge is much lower than what the provider originally charged, patients are often caught responsible for the difference.

The state's attorney general, Andrew Cuomo, said that his office had issued 16 subpoenas to different health insurers as part of the probe, including Aetna Inc., Cigna Corp. and Empire Blue Cross Blue Shield, a subsidiary of WellPoint Inc. UnitedHealth is at the center because it owns, through its unit Ingenix, the database, or tool, that much of the rest of the industry uses to determine usual and customary charges.

Called the Prevailing Healthcare Charges System, the database contains price information from more than 1 billion medical claims collected from dozens of health plans nationwide. From that database, health insurers determine what a specific doctor should charge for a given procedure in a given area and automatically reduce the bill down to a "reasonable" size before reimbursing the patient or doctor.

UnitedHealth licenses the database's use to other major insurers, who say the system protects them, and ultimately consumers, from overpaying doctors whose bills are out of whack from their peers. This isn't the first time the database or practice has triggered legal action. The American Medical Association filed lawsuits against UnitedHealth in March 2000, alleging that the database doesn't accurately measure reimbursements, but instead includes fees that are discounted and often dismisses fees from high-charging doctors.

"We believe there was an industrywide scheme perpetrated by some of the nation's largest health insurance companies' to defraud consumers, Cuomo said at a news conference. He said he plans to sue UnitedHealth and Ingenix within five days, calling the health insurer's ownership of the billing data provider "a gross conflict of interest."

Cuomo, whose office has investigated the matter for six months, estimated the activity has occurred for about a decade. As an example, he said, UnitedHealth insurers knew most simple doctor visits cost $200 but told members the typical rate was only $77. The insurers then applied a contractual reimbursement rate of 80%, covering only $62 for a $200 bill, leaving the patient with a $138 balance.

Linda Lacewell, who heads Cuomo's healthcare industry taskforce, accused UnitedHealth of telling an "outright lie" to consumers by claiming it based rates on information from across the country. She characterized the Ingenix database as "garbage in, garbage out," with insurers sometimes manipulating data before submitting it.

Ingenix doesn't provide a single audit of the information received or make sure it is fair or right, even though the business used the information to set rates for consumers, according to Lacewell.

UnitedHealth, in a statement, said it is using dependable database tools, with reference data that are "rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the heath care industry." UnitedHealth said it is in ongoing discussions with Cuomo's office and will continue to cooperate fully.

Cigna said it will cooperate fully with Cuomo's office and will respond appropriately to its probe, per usual company practice.

--Dinah Wisenberg Brin and Chad Bray contributed to this article.

Write to Vanessa Fuhrmans at and Theo Francis at

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