After almost a year of investigation, NY attorney-general Andrew Cuomo has finally finished his investigation of how the state’s health plans deal with claims for out-of-network care. The result: UnitedHealth Group willl pay $50 million to fund an independent, non-profit business to replicate its subsidiary’s calculations of “usual and customary” charges from claims submitted by health plans. A couple of days later, Aetna agreed to pitch in $20 million. And Mr. Cuomo promises more to come.
Ingenix, the UHC subsidiary in question, has meekly agreed to close down two databases that calculate these “usual and customary charges,” and fund this new, non-profit, competitor instead. Analysts agree that the charge is trivial to this $1.5 billion vendor. (Expect to see more of this type of appeasement as health insurers and other interests scramble for a seat at the health-care reform table.)
I agree fully with Mr. Cuomo, that The Consumer Reimbursement System is Code Blue; and I respect that he is addressing a real problem. But I’m still not confident that his team knows what it is facing. Mr Cuomo claims that Ingenix, which uses data submitted by its parent and many other health plans, under-estimates the “usual & customary” charges. No doubt, the incentive is there: The lower Ingenix can estimate aggregate “usual & customary” charges the less its clients have to reimburse their beneficiaries for out-of-network care.
But it doesn’t look like Mr. Cuomo understands that the prices, which physicians charge, are not real, transaction, prices. The report describes the A-G’s staff’s own creation of a “model database” using over a million actual bills. “These bills were made to the very same insurers under investigation for their use of the Ingenix databases. From these bills, we were able to derive how much health care providers actually charged in the market for the relevent office visits…” (pp. 19-20).
“Charged” does not mean that anyone paid the charged rate. Indeed, Mr. Cuomo notes that out-of-network physicians sometimes choose not to seek payment from the patient at the charged rate (balance billing), but does not report how often this occurs (p. 10). My guess is: Most of the time. Indeed, Mr. Cuomo also uncovers something not surprising to an economist familiar with price-differentiation: While health plans market policies with out-of-network benefits under attractive names like “Freedom” and “Choice” (p. 15), at least one plan pays the same rate for in-network and out-of-network care.
(When I was younger, a friend worked at a rent-a-car business which rented out cars with air conditioning at a higher rate than cars without. Of course, all cars actually had a/c, which you learned when you rented a non-a/c car and the agent said: “You’re lucky. We’ve only got a/c left today. No extra charge.”)
As I noted when I first looked at this issue, I still find Mr. Cuomo’s analysis to be very one sided: Why were the doctors not providing prices to their patients upfront? Why did they not set up their own database of “usual & customary” charges?
Yes, I know the rote response to the latter question: anti-trust law. Indeed, the Ingenix case goes back many years in NY. Mr. Cuomo did not start it. The state medical society sued Ingenix for its practices, and UHG counter-sued in May 2003, claiming that the physicians’ goal was to replace Ingenix’ database with another that would allow the doctors to collude and fix prices. UHG lost that one.
But it’s not illegal for an out-of-network doctor to post his own prices so that his patients, at least, will know what their overall liability will be. As for “usual & customary” charges as a baseline for re-imbursement, I think that the best solution is for both sides to agree to a database that is created mutually. (With respect to anti-trust law, I have previously written that federal anti-trust law should be amended to exclude disputes like this, which occur within one state.)
I continue to be skeptical about the ability of states to compel price transparency. So, I think the A-G’s efforts should focus less on transparency, per se, and more on legal reforms that improve the efficiency of contract between the patient and the out-of-network physician, (i.e., some degree of good-faith estimate, at least.)
Finally, note that the examples in Mr. Cuomo’s report are for office visits, costing a couple of hundred dollars, on average (p. 20). Claims like this should never go to a health insurer: you should pay them directly from your HSA, HRA, or FSA!