UPDATE 1-Aetna rejects $120 million out-of-network settlement

March 14 (Reuters) - Aetna Inc, the third largest U.S. health insurer, said on Friday it would not proceed with a proposed $120 million settlement with healthcare providers and plan members over out-of-network reimbursements.

Aetna, which had agreed to settle in December 2012, said enough claimants had opted out to trigger a provision enabling it to cancel the deal.

“Various legal and factual developments since the date of the settlement agreement led the company to believe terminating the settlement agreement was in its best interests,” Aetna said in a filing with the U.S. Securities and Exchange Commission.

Aetna had set aside reserves for the settlement and said it would add the remainder of those reserves to earnings, excluding amounts due to the settlement administrator. It took a $78 million after-tax charge for the settlement in the fourth quarter of 2012. Aetna said it will resume its defense in court.

Patients and doctors accused the Hartford, Connecticut based insurer of using databases provided by Ingenix, part of UnitedHealth Group Inc since renamed OptumInsight, to systematically underpay claims involving services and supplies from out-of-network providers.

In 2008, then-New York attorney general, Andrew Cuomo, who is now the state’s governor, opened a separate probe into insurer reimbursements that ended in settlements with many national insurers.

On Jan. 13, 2009, UnitedHealth and Aetna agreed to stop using the Ingenix database and to help fund a new independent database Fair Health to calculate rates. Days later, UnitedHealth agreed to pay $350 million to settle lawsuits over its out-of-network reimbursements.

Aetna did not disclose how many claimants had opted out of the settlement it was now vacating but said they had exceeded a threshold that allowed Aetna to end the agreement.

The threshold was $20 million in value represented by the difference between charges providers billed for out-of-network services and the insurer’s allowed amount that it agreed to pay on those services, the company said.

The Aetna settlement would have paid claims on reimbursement practices starting March 1, 2001 for health plan members and June 3, 2003 for providers. The agreement did not contain an admission of wrongdoing.

The case is In re: Aetna UCR Litigation, U.S. District Court, District of New Jersey, Nos. MDL-2020 and 07-03541.