NY AG Probes Health Insurers Over Reimbursement

By Paritosh Bansal and Lewis Krauskopf

NEW YORK (Reuters) - New York Attorney General Andrew Cuomo said on Wednesday he is conducting an industry-wide probe of health insurers into an alleged scheme to defraud consumers by manipulating reimbursement rates.

Cuomo said he intends to sue UnitedHealth Group Inc (UNH.N) and four of its subsidiaries, including Ingenix Inc, the nation's largest provider of health care billing information.

The attorney general also issued 16 subpoenas to the largest U.S. health insurance companies, including Aetna Inc (AET.N), Cigna Corp (CI.N) and Empire Blue Cross Blue Shield, a unit of WellPoint Inc (WLP.N).

Shares of health insurers fell after news of the investigation, with UnitedHealth closing down 2.7 percent on the New York Stock Exchange. Aetna closed down 2.6 percent, WellPoint 1.9 percent and Cigna 0.5 percent.

UnitedHealth said it was in ongoing talks with Cuomo's office and would continue to cooperate fully.

"UnitedHealth Group recognizes the excellent health care delivered to patients by the physicians of New York and is committed to fair and appropriate payment for physicians, the state's other health care providers and consumers," it said,

Spokespeople for Aetna, Cigna and Empire Blue Cross said they would cooperate with Cuomo's office.

The alleged scheme centers on Ingenix, which serves as a conduit for rate data to the largest insurers in the country, Cuomo said in a statement.

A six-month probe found that Ingenix operates a "defective and manipulative" database that most major health insurance companies use to set reimbursement rates for out-of-network medical expenses, Cuomo said.

The probe found that two other UnitedHealth subsidiaries used data provided by Ingenix to keep reimbursement rates artificially low and thereby force patients to assume more of the costs, the AG's office said.

The subpoenas to insurers request documents on how they compute reasonable and customary rates, as well as communications between Ingenix and the insurers on the issue, among other information, Cuomo said.

"Getting insurance companies to keep their promises and cover medical costs can be hard enough as it is," Cuomo said. "But when insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need."

According to Cuomo's office, Ingenix used insurers' billing information to calculate a "reasonable and customary" rate for individual claims, generally taking into account the type of service, physician, and geographical location.

But the investigation found such rates produced by Ingenix were lower than the actual cost of typical medical expenses, it said.

UnitedHealth's insurance plans also hid their connection to Ingenix from plan members, Cuomo said.

Several physician and patient advocacy groups applauded the attorney general's probe.

The investigation "calls into question the validity of a system that health insurers have used for years to reimburse physicians and their enrolled members," Nancy Nielsen, president elect of the American Medical Association, said in a statement.

Historically large-scale managed care industry probes have taken years to play out and any resulting fines have tended to be minor, Wachovia analyst Matt Perry said.

"If insurers are forced to reimburse out-of-network providers at a higher rate, they will likely expand their networks to include more doctors and/or raise premium rates to their customers to offset higher costs," Perry said in a research note.

For UnitedHealth, the New York probe comes only a few weeks after California regulators said they were seeking to fine a different UnitedHealth unit up to $1.3 billion for alleged claims violations.

"UnitedHealth is fighting to stem attrition of customers and can ill-afford this latest salvo of negative headlines," Goldman Sachs analyst Matthew Borsch said in a research note.

UnitedHealth closed down $1.30 at $46.97; Aetna was down $1.32 at $49.26; WellPoint closed down $1.46 to $74.42 and Cigna finished down 24 cents at $46.81 -- all on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Carol Bishopric)