UPDATE 2-UnitedHealth settles payment suits for $350 million

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NEW YORK, Jan 15 (Reuters) - UnitedHealth Group Inc UNH.N agreed on Thursday to pay $350 million to resolve class action lawsuits over reimbursing patients for out-of-network medical services.

The settlement comes two days after UnitedHealth struck an agreement with the New York state attorney general following a probe into the independence of the company database used to set reimbursement rates for patients’ medical bills.

Attorney General Andrew Cuomo also reached agreement on Thursday with another health insurer, Aetna Inc AET.N, which will pay $20 million to help establish an independent database used for calculating rates.

Aetna’s payment adds to the $50 million UnitedHealth agreed to pay earlier this week to fund the database. UnitedHealth is also shutting its Ingenix medical billing information service, which has been at the center of the probe.

UnitedHealth’s $350 million settlement resolves litigation filed on behalf of the American Medical Association, health plan members, healthcare providers and state medical societies.

It will fund the settlement for health plan members and out-of-network providers in connection with procedures performed since 1994. UnitedHealth, which did not admit wrongdoing, will be released from claims relating to its out-of-network reimbursement policies dating back to 1994.

Other health insurers also face similar class action lawsuits.

“This scam cost consumers hundreds of millions of dollars,” Cuomo said during a news conference on Thursday.

The UnitedHealth settlement involves three federal class action suits the company is seeking to have consolidated in the Southern District of New York. The settlement is subject to court approval.

UnitedHealth, the largest U.S. health insurer by market value, said it would pay for this settlement with cash on hand, with the accrual included in its results for the fourth quarter of 2008.

A probe by Cuomo, announced last February, found that UnitedHealth’s Ingenix unit operates a “defective and manipulative” database that most major health insurers use to set reimbursement rates for out-of-network medical expenses.

Insurers often promise to cover up to 80 percent of the so- called “usual and customary” rate of an out-of-network expense, with consumers responsible for paying the balance. The Ingenix database would skew these rates downward compared with the actual market rate, shortchanging consumers, Cuomo said.

“By using a flawed database to determine reimbursement rates for out-of-network care, insurers have increased profits at the expense of patients and physicians,” AMA President Nancy Nielsen said in a statement.

Cuomo has also said his office would approach other health insurers about using the new database and contributing money to fund it.

UnitedHealth shares were down 13 cents at $23.95 at midday on the New York Stock Exchange. Aetna shares were down $1.03 cents, or 4 percent, at $25.08. (Editing by Lisa Von Ahn and Andre Grenon)