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Post date: June 18 2009

Attorney General Cuomo Announces Final Agreement In Historic Reform Of Health Insurance Industry - Every Insured New Yorker Now Protected From Corrupt Reimbursement System

NEW YORK, N.Y. (June 18, 2009) - Attorney General Andrew M. Cuomo today announced that Health Net, Inc. (NYSE: HNT) (“Health Net”) has agreed to end its relationship with Ingenix, the defective database insurers use to set rates, and contribute $1.6 million toward the creation of a new, independent database. Health Net serves over two million consumers across the nation and has nearly 200,000 members in New York State. The agreement with Health Net marks the completion of the Attorney General’s industry-wide sweep of the health insurance industry and means that every insured New Yorker is now covered by his reforms.

Attorney General Cuomo has now secured agreements with 12 health insurers, including the three largest insurers in the nation, along with the largest national and regional insurers operating in New York State. His reforms have transformed a conflict-of-interest-ridden system that was used by health insurance companies to manipulate rates and underpay patients who went out of network for health care. To date, the office has secured nearly $100 million from insurers to be used toward the creation of a new, independent database.

Governor Paterson also issued a new Department of Insurance regulation today that will codify Attorney General Cuomo’s recent efforts to reform a broken system for determining patient reimbursement rates and ensure that the Cuomo’s historic reforms become the industry standard.

The new Insurance regulation will govern health and accident insurers as well as health maintenance organizations (“HMOs”) that promise to reimburse consumers who go out of network based on the usual and customary rate of the service provided. By requiring, among other things, that health insurers and HMOs must use an independent source for establishing usual and customary rates, the regulation eliminates conflicts of interest, ensures fairness and accuracy, and brings much needed transparency to the consumer reimbursement system. The regulation becomes law sixty days after notice of adoption is published in the State Register.

“With Health Net signing on today, we have reached our goal of covering every single insured New Yorker with our reform efforts,” said Attorney General Cuomo. “I’m also pleased to have partnered with Governor Paterson and Insurance Superintendent Dinallo and created this new regulation to codify the reforms that the entire health insurance industry has now embraced. It will eliminate the conflicts of interest that infected the industry in the past, and ensure that New York healthcare consumers are never subjected to these kind of abuses again.”

“These regulations will make permanent the reforms Attorney General Cuomo began. For too long, health insurers have not fairly represented the coverage amounts they will pay for out-of-network medical services,” said Governor Paterson. “Attorney General Cuomo has effectively required health insurers to live up to the promises they make. But we must ensure that companies do not drop this essential reform when their five-year agreement with the Attorney General ends. In these difficult times, when consumers are stretched, we cannot permit them to have expensive surprises in the cost of necessary health care. These reforms will make sure consumers can make informed decisions about health care knowing beforehand what it will cost them.”

Department of Insurance Superintendent Eric R. Dinallo said: “Consumers have the right to accurate information about what it will cost them to seek care out of network before they decide where they want to be treated. Our new regulation will ensure that insurance companies use accurate data about out-of-network costs and that consumers know how much their health insurance will pay if they prefer out-of-network care. Attorney General Cuomo’s extraordinary and groundbreaking work has changed how usual and customary rates for out-of network-service are set. Our regulation will ensure that these reforms are permanent.”

In order to eliminate the conflicts of interest that corrupted the system in the past, the new Department of Insurance regulation requires that insurers use an independent source for determining usual and customary rate. This means that the insurer can no longer use an entity that is owned or controlled by or otherwise affiliated with an insurer, HMO, medical association, or health care provider.

To ensure fairness and accuracy industry-wide, the insurer must make certain that a “usual and customary” rate schedule fairly and accurately reflects market rates, including that it:

  • fairly and accurately reflects geographic differences in costs;
  • is based on sufficient data, to the extent available, to constitute a representative and statistically valid sample of charge data for the same or comparable service and type of provider;
  • is credible in methodology, data and relationships;
  • includes input from a diverse group of relevant companies, groups, health care providers, and market researchers; and independent research conducted by the source of the data for the UCR schedule to confirm the accuracy of all data submitted; and
  • is updated periodically to reflect changes in health care provider charges, but no less frequently than once in any consecutive twelve-month period.

With respect to transparency, the insurer must disclose the specific amount of reimbursement for a particular procedure or treatment within three business days of a request by the member. It must also post a copy of the usual, customary and reasonable schedule of reimbursement on a website accessible to members.

Similarly, the insurer must prominently disclose in its written materials its method of determining usual and customary rate, the source of its data, and the name of the entity that the insurer relies upon to calculate the usual and customary rate. The insurer must also explain the financial impact of going out of network, in that the member may have to pay the balance of the bill and other cost sharing amounts such as co-payments and deductibles under the policy.

A health plan that uses a set fee schedule instead of a “usual and customary rate” for out-of-network benefits must fully “disclose the specific amount of reimbursement for a particular procedure” upon request by the consumer. In addition, the health plan must post a copy of the fee schedule on the health plan’s website.

Attorney General Cuomo’s investigation into the out-of-network reimbursement system concerned allegations that as a subsidiary of UnitedHealth, Ingenix, the database used by health insurers across the country to set out-of-network reimbursement rates, had a vested interest in helping set rates low, so companies could underpay patients for out-of-network services. The investigation revealed that the database intentionally skewed “usual and customary” rates downward through faulty data collection, poor pooling procedures, and the lack of audits, meaning consumers were forced to pay more than they should have. The investigation found the rate of underpayment by insurers ranged from ten to twenty-eight percent for various medical services across the state.

Over the past six months Cuomo has secured agreements with the largest health insurers in New York and the nation to end the manipulation of reimbursement rates at the expense of patients across the country and transform a conflict-of-interest-ridden industry:

  • January 13, 2009: UnitedHealth Group Inc. agrees to shut down the Ingenix database and contribute $50 million towards the new, independent database.
  • January 15, 2009: Aetna agrees to end its relationship with Ingenix and contribute $20 million towards the new, independent database.
  • February 2, 2009: Aetna also agrees to reimburse over 73,000 students at over 200 colleges nationwide for underpaying out-of-network claims.
  • February 4, 2009: MVP Health Care agrees to end its relationship with Ingenix and contribute $535,000 towards the new, independent database.
  • February 4, 2009: Cuomo announces intent to sue Capital District Physicians’ Health Plan for defrauding consumers across New York by manipulating rates.
  • February 10, 2009: Independent Health and Health Now, New York Inc. agree to end their relationships with Ingenix and contribute $475,000 and $212,500, respectively, to fund the new database.
  • February 17, 2009: CIGNA agrees to end its relationship with Ingenix and contribute $10 million towards the new, independent database.
  • February 17, 2009: Cuomo announces intent to sue Excellus Health Plan for defrauding consumers across New York by manipulating rates.
  • February 18, 2009: WellPoint, Inc. agrees to end its relationship with Ingenix and contribute $10 million towards the new database.
  • March 3, 2009: Guardian Life Insurance Company of America agrees to end its relationship with Ingenix and contribute $500,000 towards the new database.
  • March 5, 2009: Excellus Health Plan and Capital District Physician’s Plan agree to end their relationships with Ingenix and contribute $775,000 and $300,000, respectively, toward the new database. The companies also agree to re-process claims over the past six years and reimburse members who were underpaid.
  • March 10, 2009: GHI and HIP agree to end their relationship with Ingenix and contribute $1.5 million toward the new database.

Health Net is a California-based health insurer that services over two million people nationwide and nearly 200,000 in New York State. The majority of its New York members are from Westchester, New York, Kings, Nassau, and Queens Counties. Health Net did not contribute data to Ingenix, but like other insurers, relied on the database to determine reimbursement rates for patients who went out-of-network.

Dr. Jonathan H. Scheff, Chief Medical Officer of Health Net, Inc., said: “Health Net has a proven record of championing health care reform that addresses health care costs paid by consumers. Health Net supports the reform efforts of the New York Attorney General and the transparency that will be created by the new database, which speaks directly to the conflicts of interest inherent in the Ingenix database. Health Net looks forward to working collaboratively with the Attorney General in the future.”

David T. Hannan, MD, President of the Medical Society of the State of New York (MSSNY), said: “We applaud Attorney General Andrew Cuomo for negotiating a 12th insurer agreement to stop using the Ingenix database and fund a replacement, and we thank him for helping to develop state regulations for determining UCR fees. In a few short years, the Attorney General has achieved a goal that medical societies sought in a lawsuit over nine years ago.”

Chuck Bell, Programs Director for Consumers Union, said: “New York State has led the way in investigating problems with out-of-network reimbursement for consumers, and it is now setting the gold standard for the nation in how in can be conclusively resolved. The new insurance regulation proposed by Attorney General Cuomo and Superintendent of Insurance Eric Dinallo will ensure that out-of-network reimbursement rates will be calculated fairly and impartially, with prompt disclosures to consumers. We also commend Healthnet for its decision to settle with the Attorney General on these issues, and support the new database that will be used to calculate out-of-network reimbursement rates.”

The agreement announced today is the result of an investigation by Deputy Chief of the Health Care Bureau James E. Dering, Senior Trial Counsel Kathryn E. Diaz, and Assistant Attorneys General Brant Campbell and Sandra Rodriguez, under the direction of Linda A. Lacewell, the head of the Attorney General’s Healthcare Industry Taskforce.

In January, Cuomo also issued a report on his investigation, “Health Care Report: The Consumer Reimbursement System is Code Blue.” The report highlights the conflicts of interest and other defects in the current system and calls for the reforms announced today. To access the report, get consumer tips for out-of-network care, or to file a complaint, please visit