Out-of-Network Scandal is a Good Thing

As they said in the 60s, “you’re either on the bus or off the bus.” Were Ken Kesey talking in a more modern medical context he might have said “you’re either in the network or out of the network.” And being out of the network can be costly.

Unlike HMOs, which are closed systems — your health plan covers treatment within their network or, with few exceptions,  doesn’t cover the service at all — PPOs are more open. You get a higher reimbursement for seeing providers within the health plan’s network or you get reduced coverage for services from non-network physicians. The benefits to all concerned are rather straightforward: the physicians and other providers offer the health plan lower rates in exchange for the health plan encouraging patients to see those providers. The health plan pays less so can offer their coverage at a lower cost, increasing their market share. Consumers pay less out-of-pocket when they use one of these preferred providers. Yet, if the consumer does seek medical care from a provider outside the network, the health plan pays a significant portion of the bill.

In theory, what the carrier pays for out-of-network services is a percentage of the usual, reasonable and customary (“UCR”) charges imposed by most providers in that community. That sounds fair: if a consumer chooses to engage a doctor who is more expensive than the norm, the consumer should pay for excess cost.

The problem is that few people know what the UCR cost is for any given treatment. Heck, physicians rarely know what the UCR is for their community for a particular service. When the carrier notifies the patient that their doctor charged more than what is typical it’s too late for the patient to do much about it. The result: angry patients, frustrated doctors and another deposit of ill-will in the industry’s karma account.

At the heart of the problem is defining “usual, reasonable and customary.” In the end, despite all the surveys and actuarial work, a high level of subjectivity is involved. How is it measured? Who determines if the costs are “reasonable” even if they are usual and customary. There’s a lot of wiggle room in the data base.

For years, the “decider,” as a past president would put it, for the nation’s largest health plans has been a company called Ingenix. Ingenix is owned by UnitedHealth Group, Inc., which also owns the health plan United HealthCare. Even though Ingenix is owned by a competitor, most of the major health plans in the country relied on its billing information for determining what out-of-network charges they would pay.

Not for long. New York Attorney General Andrew Cuomo went after Ingenix and UnitedHealth for manipulating reimbursement rates and defrauding consumers. As a result of Attorney General Cuomo’s actions, Ingenix will exit the billing database business and UnitedHealth will pay $50 million to help create a non-profit assigned to maintain a new, independent database.

While the New York legal action is no doubt painful to some carriers, most notably UnitedHealth, it could work to the industry’s benefit. It replaces a point of intense friction with an objective, common definition. It’s not that the definition of UCR put out by the non-profit won’t still be significantly subjective — it will be. But it will be the definition of the non-profit.  And it’s not that consumers won’t blame the health plans when they disagree with the non-profit’s definition of UCR — they will. But the carriers will be able to refer their members to the non-profit.

Given the low regard the industry is held in by the public, any action which stems that flow of ill will deposits is a good thing.

Of course, this being America, the path to better karma is not an easy one. The industry will first need to go through the political gauntlet of law suits and public hearings. Next in line: The Senate Commerce, Science and Transportation Committee.  It’s Chair, Senator Jay Rockefeller, is holding a hearing Tuesday in which executives from United HealthGroup and Ingenix will be the star witnesses. As reported by the Associated Press, Senator Rockefeller claims, UnitedHealth and Ingenix are “lowballing deliberately. They deliberately cut the numbers so the consumer as to pay more of the cost. … It’s scamming. It’s fraud.”

In that UnitedHealth has already paid $350 million to settle a suit on the matter brought by the American Medical Association, albeit without admitting guilt, the accusations are hardly surprising. And while UnitedHealth would like to put the UCR scandal behind them, there’s a script to these things and they tend to run through Washington. So this is just something they need to do. And it’s something they should do.

Because the UCR situation wasn’t fair to consumers. And if the industry needs to pay a price as part of fixing it, so be it. At the end of the day, there will be a more fair way of defining what out-of-network charges should be. And that’s a good thing for consumers, providers and health plans.

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