The region's two largest health insurance companies will stop using a database following a state investigation that alleged the system over the last decade underpaid patients and physicians across the nation.
Independent Health agreed to pay $475,000, and HealthNow, the parent company of Blue Cross Blue Shield of Western New York, will pay $212,500 to help fund a new, independent database, Attorney General Andrew Cuomo announced Tuesday in Buffalo.
Cuomo has been investigating how the health insurance industry decides what to reimburse patients for medical care provided by a hospital or doctor not in an insurer's network. That's significant for consumers because whatever is not covered by insurers comes out of patients' pockets.
At issue is the information used to determine "usual and customary rates" for out-of-network services. Out-of-network doctors and hospitals charge higher prices than those in a network, so insurers typically pay only 50 percent to 80 percent of the rates.
For the past 10 years, the industry has relied on databases operated by the Ingenix subsidiary of UnitedHealth Group of Minneapolis, the nation's No. 2 health insurer, to determine rates. But the attorney general's investigation found the rates understated actual prices for 110 million patients by as much as 28 percent.
Last month, UnitedHealth reached a settlement with Cuomo after the year-long investigation, agreeing to abandon the databases, and paying $50 million to help fund a new one to be operated by a nonprofit institution. It also reached a $350 million class-action settlement with providers. Days later, Aetna also agreed to stop using Ingenix, and to pay $20 million to Cuomo's program.
Cuomo contended the system creates a conflict of interest because UnitedHealth, through Ingenix, provides the basis for determining rates that are supposed to reflect local markets. However, at the same time, the giant insurer is obligated through other subsidiaries to reimburse consumers or their physicians a percentage of those rates.
The insurer's financial interest to maximize profits creates an incentive to manipulate the data to reduce "market" rates, according to Cuomo.
"It was a classic rate-setting scheme," he said. "It was also a black box. You didn't know how much you would be reimbursed until you paid the bill."
The settlement will affect insurers across the nation because UnitedHealth operates the databases used by the entire industry through Ingenix.
Cuomo reached a similar agreement with MVP Healthcare of Schenectady, which owns Preferred Care in Rochester. Excellus, the Rochester-based parent of Univera Healthcare, said it is in talks with the Attorney General's Office about the inquiry.
Cuomo has said he will take legal action against insurers who fail to cooperate and has said he plans to sue Albany-based Capital District Physicians' Health Plan for consumer fraud and deceptive practices, citing its refusal so far to drop the database and agree to his reforms.
Independent Health and HealthNow agreed to use the new database, which Cuomo said he plans to associate with a university and start with about $100 million from all the insurers. The as-yet undermined operator of the new database will be charged with developing a Web site where consumers from around the country can learn in advance how much they may be reimbursed for common out-of-network services.
"The creation of an independent entity that establishes and publishes the usual and customary rates health plans utilize to pay for out-of-network services will provide additional transparency," said Dr. Jay Pomerantz, chief medical officer of HealthNow.
"This agreement furthers our leadership role in transforming health care by helping to give consumers resources they need to make more informed health care decisions," said Dr. John Gillespie, chief medical officer of Independent Health.
The insurer said few of its members -- less than one-half of 1 percent -- were affected.
Independent Health used Ingenix but did not contribute data to it. HealthNow used Ingenix and contributed data.
The New York Health Plan Association, which represents managed care health plans, praised the idea of an independent database but also called for greater transparency of what doctors and hospitals charge for services.
"It is important that the attorney general remember that there are two sides to the coin here: what the reimbursement is as well as what is being charged. Most consumers would be shocked to see the dramatic difference in charges billed by out-of-network providers," said Paul Macielak, president of the association.
When the new database is in operation, Cuomo said patients will be able to ask doctors how much they charge armed with the knowledge of what the reimbursement is.
Several consumer advocates, as well as the American Medical Association, praised the investigation and settlements.
"A patient thinks they know what will happen when they go out of network. But then they receive a big surprise -- big bills. Patients end up getting the impression that their doctor is gouging them," said Dr. Nancy Nielsen, the Buffalo physician who heads the AMA.
The AMA, along with individual physicians and state medical associations, on Monday filed class-action lawsuits against Aetna Health and CIGNA Corp. claiming the companies used rigged data to dramatically under-reimburse physicians.