Health Net Settles for $215 in Most Recent Installment of Saga Over Ingenix’s “Usual, Customary, and Reasonable” Reimbursement Calculations

On July 24, 2008, the U.S. District Court for the District of New Jersey approved a $215 million settlement between health insurer Health Net, Inc. (Health Net) and the plaintiffs in three related class actions, all of whom were members of Health Net’s health care plans.  The settlement resolves an action based on a complaint alleging that Health Net held their out-of-network reimbursements rates inappropriately low based on flawed reports of providers’ charges produced by Ingenix, Inc. (Ingenix), a UnitedHealth Group subsidiary.¹  This is not the only allegation that Ingenix maintained flawed data on the “usual, customary, and reasonable” rates at which members of health plans are reimbursed for out-of-network services.  Andrew Cuomo, the Attorney General for the State of New York, announced in February that he was commencing an “industry-wide investigation” into the “fraudulent reimbursement scheme[s]” of some of the nation’s largest health insurance companies, including Aetna, Empire BlueCross BlueShield, and UnitedHealth Group, the parent company of Ingenix, as well as against Ingenix itself, which provides healthcare billing information to the insurers.²  A recent class action lawsuit filed in the U.S. District Court for the District of Connecticut also alleges that Ingenix and various health insurance providers (including UnitedHealth Group, Oxford Health Plans, Aetna, Cigna and others) conspired together to “depress reimbursements” and “[force] policyholders to pay ‘unlawfully inflated out-of-pocket expenses.’”³

The gravamen of the New Jersey and Connecticut class actions, as well as the New York Attorney General’s investigation, is that Ingenix produces inappropriately low data on the “usual, customary, and reasonable” (UCR) rates at which certain services are billed, which, in turn, are used by the insurance companies to determine how much to reimburse members for out-of-network services.  Under Ingenix’s reimbursement method, out-of-network services are generally reimbursed at 80% of the physician’s full bill or the UCR rate, whichever is less.⁴  The class action plaintiffs and the Attorney General allege that because Ingenix is a subsidiary of UnitedHealth Group, it has a financial interest in keeping reimbursement costs low, which has led it to inappropriately assess the value of the UCR rate.⁵  The allegation goes on to demonstrate that the Ingenix database is inherently flawed because the information it disseminates to the insurance providers is based on value data provided by those insurance companies in the first place.  In other words, the UCR data is never audited by any outside entity.

The American Medical Association has repeatedly supported these actions and the investigation by Attorney General Cuomo.  Dr. Ronald M. Davis, President of the AMA, declared that “Cuomo’s investigation has discovered what the AMA has been saying for years: that Ingenix operates a defective and manipulated database that some health insurers use to set reimbursement rates for out-of-network expenses.”⁶   Particularly of concern to the AMA is the impact that this practice has had on physician-patient relationships, i.e., when patients receive a lower reimbursement from their insurance companies than the rate their physicians charge them, physicians get accused of overcharging.  This is a situation, Dr. Davis argues, that “can impair or destroy a patient-physician relationship.”⁷  The AMA has been involved in its own class action against United and Metropolitan Life Insurance since 2000 (now still pending in the U.S. District Court for the Southern District of New York), and it believes that its own case may be helped by Cuomo’s investigation, as well as by a recent decision in a Massachusetts state appellate court⁸ which remanded a similar case to the trial court in favor of the chiropractor plaintiff, holding that Ingenix’s database was not an accurate representation of UCR rates.⁹

These cases, particularly the recently settled class action in New Jersey, have significant implications for the healthcare insurance industry. While Cuomo is investigating Ingenix and the insurance companies under New York state laws, the Connecticut case has filed its suit under federal racketeering and antitrust laws, as well as the Connecticut Unfair Trade Practices Act.¹⁰  As UnitedHealth Group is one of the nation’s largest health insurance providers, these cases have the potential curb the rising cost of health care and health insurance, if it is found that the insurance companies are, in fact, relying on flawed data and keeping reimbursement rates artificially low.  Now that the New Jersey class action has settled, however, the courts may begin to take a more scrutinizing look at what is an appropriate means for calculating UCR rates, which has the potential to significantly improve the freedom of patients to choose their doctors without fear that they are being overcharged or under-reimbursed.