Health Net to Pay $255 Million to Settle Out-of-Network Underpayment Allegations

Health Net will pay $255 million to settle three class-action suits ? Wachtel v. Health Net, McCoy v. Health Net and Scharfman v. Health Net ? against it and regional subsidiaries. The allegations it underpaid out-of-network claims extend back to 1997.

The suits charged Health Net with using a flawed database to improperly reimburse its members for claims for out-of-network treatment, according to Wilentz, Goldman & Spitzer, which represented the plaintiffs. Under terms of the settlement, Health Net will pay $215 million to more than two million participants in its health insurance plans in several states, and it will make changes to its business practices valued at $40 million, the firm says.

Health Net was charged with violations of the Employee Retirement Income Security Act (ERISA), New Jersey?s employer health plan law, and the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Act by systemically underpaying Health Net Insurance Plan members. By entering into the settlement, Health Net does not admit liability.

The settlement of the case may have more far-reaching implications, as the flawed database was produced by Ingenix, a subsidiary of United Health Group; the New York Attorney General's Office announced in February intentions to sue Ingenix, parent company United Health, and three other subsidiaries for scheming to "defraud consumers by manipulating reimbursement rates."

There, a six-month investigation found that Ingenix, the nation?s largest provider of healthcare billing information, ?operates a defective and manipulated database that most major health insurance companies use to set reimbursement rates for out-of-network medical expenses.? Further, the investigation found that two subsidiaries of United ?dramatically under-reimbursed their members for out-of-network medical expenses by using data provided by Ingenix," according to a statement released at the time.

As a result, state Attorney General Andrew M. Cuomo issued 16 subpoenas to the largest insurers in the country, including Aetna, Cigna, and Empire BlueCross BlueShield. The case is ongoing.

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