The Empire Strikes Back: N.Y. Probes Underpayments by Insurers to Out-of-Network Providers, Patients

After several years of insurance companies aggressively setting limiting rates as to what they will pay out-of-network providers, New York has launched an investigation into whether insurance companies are unfairly setting those rates and causing patients to pay disproportionately high amounts of provider bills. Health insurers are being probed as part of an healthcare industry-wide investigation to determine whether they have schemed to "defraud consumers by manipulating reimbursement rates," according to the N.Y. attorney general's office.

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 release.

As a result, state Attorney General Andrew M. Cuomo has issued 16 subpoenas to the largest insurers in the country, including Aetna, Cigna, and Empire Empire BlueCross BlueShield; he has announced that he intends to file suit against Ingenix, its parent UnitedHealth Group and three additional subsidiaries. You can read the notice of proposed litigation here.

In one example cited by the attorney general's office, United insurers knew most simple doctor visits cost $200, but claimed to members that the typical rate was only $77 -- a rate manipulated to be "remarkably lower than the actual cost of typical medical expenses," despite the fact the Ingenix database was supposed to be used to calculate a "reasonable and customary" rate. The insurers then applied the contractual reimbursement rate of 80 percent, covering only $62 for a $200 bill, and leaving the patient to cover the $138 balance.

Further, "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,'" says the attorney general's office. This created "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."

Interestingly enough, New York is the same state that is aggressively attacking centers that may be waiving or reducing out-of-network payments. On the positive side, this is one of the few situations we're aware of where a state is actually taking issue with insurance company underpayments.

Audio of Mr. Cuomo's announcement of the investigation results and subpoenas is available for download here.