Lawsuit Sheds Light on Medical Data Practices as Trigger for Rising Self-Pay Balances

Higher deductibles and co-pays are not the only reasons insured patients saw their medical bad debt skyrocket in recent years. An investigation by New York Attorney General Andrew M. Cuomo’s office found that at least two of the country’s major health insurers have been underpaying health care providers and consumers who received out-of-network care. The underpayments affect out-of-network policies dating back more than a decade.

When an insured patient opts for out-of-network treatment they typically expect the insurer to pay 80 percent of the charges. But the AG’s investigation found that in New York State the rate of underpayment by the insurers ranged from 10 to 28 percent.

“That means many consumers were forced to pay more than they should have,” the NY attorney general’s office said in a press release.

The problem for health care providers is that fewer insured patients could afford to pay the excess as bad debt from self-pay medical balances grew faster than any other medical bad debt segment. According to the American Hospital Association, the hospital industry had $34 billion in uncompensated care expense in 2007.  And 20 percent of hospitals reported a significant increase in uncompensated care expense as a percentage of revenue for 2008.

The New York AG’s office said the underpayments resulted from manipulated health billing information, based on type of service and geographical location, provided by Ingenix, Inc. The United HealthGroup subsidiary provided medical billing information to Aetna and a host of other health insurers.

Several affected groups, including the American Medical Association, health plan members, health providers and state medical societies have filed a class action lawsuit against several other insurers.  UnitedHealth Group announced Thursday that it has agreed to pay $350 million to settle the class action claims, although it admits no wrongdoing.

The settlement affects out-of-network polices dating back to 1994 and it comes two days after UnitedHealth struck a deal with the AG’s office to close Ingenix and pay $50 million to help establish an independent health information database insurers can use to calculate rates for out-of-network reimbursements. Aetna has also agreed to pay $20 million to help establish the independent health information database.

Plaintiff’s Attorney Stanley Grossman of the Pomerantz Firm in New York told insideARM that if the court approves the settlement, the physicians and policy holders will have to file a claim to participate in the $350 million settlement. The AMA did not seek monetary damages, AMA spokesman Robert J Mills told insideARM. The association, which has more than 300,000 members, was more interested in ending the use of Ingenix’s database, which the AMA says “corrupted the system for paying out-of-network medical bills.”

“An independent and transparent database will keep private interests from corrupting the data used to set reimbursement rates for out-of-network care,” said AMA President Dr. Nancy Nielsen. “Health insurers should act immediately to create an industry-wide commitment to end their use of the rigged Ingenix database and work to restore fair reimbursements to patients and physicians.”

But Karen Ignagni, President and CEO of America’s Health Insurance Plans, said the New York AG’s settlement presents an opportunity to shed light on one of the root causes of rising medical costs in America: wide variations in charges by out-of-network providers across the country.

“Consumers would be shocked to see the wide variation in charges billed by out-of-network providers,” Ignagni said in a statement. “As policymakers pursue health care reform, they should look carefully at the dramatic differences in billed charges for out-of-network services, especially as experts report that there is no correlation between the level of charges and the quality of care provided.”