Andrew Cuomo Takes On Insurers

Those "reasonable and customary" charges insurers agree to pay might not be so reasonable.

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Healthcare bills have always been baffling. Indeed, it's hard to think of a less aptly named document than your insurer's "Explanation of Benefits." Now there's even more reason to worry you're being overcharged. According to an investigation by New York Attorney General Andrew Cuomo, insurers have been systematically low-balling their reimbursements to some physicians and hospitals—leaving consumers to pick up too much of the tab.

The investigation focuses on services by doctors, hospitals, and other providers who are outside the health plan's approved network. About three quarters of people are in health plans that allow them to use such out-of-network services, usually with the proviso that they're responsible for about 20 percent of the bill. But here's the catch: If the provider's bill exceeds what is "reasonable and customary" for similar services in that geographic area, the insurer won't pay the whole bill, leaving the consumer on the hook for not only his or her 20 percent share but also for any amount above that reasonable and customary level.

For example, Cuomo's investigation found that in New York City, where a physician might bill $200 for a typical office visit, the amount the insurer would reimburse based on reasonable and customary rates was just $77. So a consumer who expects to pay 20 percent, or $40, for this hypothetical visit would actually get stuck with a bill for $138, because the insurer would only pay 80 percent of the $77 reasonable and customary rate—or $62. "I don't think most people understand this," says Ron Pollack, executive director of Families USA, a healthcare consumer advocacy group.

The practice isn't new; insurers have been incorporating reasonable and customary rates into their payment formulas for decades. Before managed care created the distinction between "in network" and "out of network" providers, they relied on a database of provider charges compiled by an insurance industry trade group to help determine what to pay on every claim. These days, the database of 1.3 billion records of provider charges used to set those out-of-network reimbursements is maintained by a company called Ingenix, which is owned by UnitedHealth Group, one of the country's largest insurers.

Cuomo argues that the Ingenix database used by UnitedHealth and other insurers is "defective" and "manipulated," according to the press release announcing the investigation earlier this month. He says the company deletes a disproportionate number of high fees from the database, for example, so that customary rates appear lower than they really are. "By distorting the 'reasonable and customary' rate, the United insurers were able to keep their reimbursements artificially low and force patients to absorb a higher share of the costs." Cuomo announced that he intends to sue Ingenix, UnitedHealth Group, and three other subsidiaries and has issued subpoenas to other major health insurers that use the Ingenix data, including Aetna, Cigna, and Humana.

In a statement responding to the investigation, UnitedHealth says its data are "rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the healthcare industry." The company says it is cooperating with Cuomo.

Just how appropriate the "reasonable and customary" levels are will emerge as the investigation proceeds. What is apparent right now is that consumers need better price transparency. Anyone who's ever tried to figure out how much he or she can expect to pay out of pocket for surgery, lab work, or even a specialist consultation has discovered just how opaque and convoluted our current system is.

Experts agree: If you can stay in-network, do. Out-of-network care usually has a higher deductible in addition to those pesky reasonable and customary restrictions. If you can't avoid going out-of-network, do this: Find out from the doctor what the charge will be and ask your insurer ahead of time how much of that the company will pay, says Robert Laszewski, a health policy consultant and former insurance executive. Then ask your doctor if he or she will accept that amount as payment in full.

"Most of the time they'll accept the reasonable and customary amount if you ask them to because that's what they normally get," says Laszewski. It's a bit of a hassle, but what have you got to lose?