“Usual and Customary” Came From a Database UnitedHealth Owned. Insurers Put Up Almost $100 Million to Replace It.

For years, one number decided how much of an out-of-network doctor bill an insurer would cover. That number came out of a database owned by an insurance company.

The database was called Ingenix. It was a subsidiary of UnitedHealth Group, a major American health insurer. Its data was sold across the industry and used to set what insurers called “usual and customary” rates, meaning the going local price for a medical service.

Out of network means a doctor who is not on the health plan’s approved list. When a patient saw one, the insurer paid a share of the usual and customary rate, not a share of the actual bill. Whatever was left over stayed with the patient.

So the yardstick mattered more than the bill did. And the industry being measured owned the yardstick.

The investigation that named the conflict

In February 2008, then New York Attorney General Andrew Cuomo announced an industry-wide investigation into how those rates were set.

The office’s stated position was direct. Having a health insurer determine the usual and customary rate, and then reimburse a large portion of it, “creates an incentive for the insurer to manipulate the rate downward,” the January 2009 release said. A low benchmark meant smaller payments from insurers and larger balances left with patients.

That was an allegation. It was never tested at trial.

What arrived instead was an agreement.

January 13, 2009

On that date, UnitedHealth Group agreed to shut the Ingenix databases down.

The company also agreed to pay $50 million toward a new, independent, not-for-profit database that would set out-of-network benchmarks without an insurer holding the keys.

The Attorney General’s office described the replacement as a new not-for-profit company. It would build the database and run a public website where patients could compare out-of-network prices before the care instead of after the bill.

That nonprofit became FAIR Health, Inc., established in October 2009, by its own account, “as part of the settlement of an investigation by New York State into conflicts of interest involving the adjudication of claims.”

The agreements did not stop with one carrier. Two days later, on January 15, 2009, Aetna agreed to end its own relationship with Ingenix and put another $20 million toward the new database. Cigna and WellPoint followed at $10 million each, and a run of smaller New York plans signed on through the year at figures as low as $212,500. By the Attorney General’s own accounting that October, almost $100 million in settlement money would fund the replacement system.

Ten to twenty-eight percent

The Attorney General’s office stated that “the rate of underpayment by insurers ranged from ten to twenty-eight percent for various medical services across the state.”

By the Attorney General’s account, then, this was not a rounding error and not one miscoded procedure. It was a benchmark running light by double digits, across a range of services, on bills that patients were left holding.

And the response went past the industry stopping its use of the database. The industry put up the money to build the thing that replaced it.

The second settlement, $350 million

Separately, UnitedHealth agreed to pay $350 million to resolve a class action over the same reimbursement system, brought by the American Medical Association and other plaintiffs. The suit had been filed on March 15, 2000. The settlement was announced on January 14, 2009, one day after the New York agreement, and American Medical News reported the figure and the shutdown together under the headline “United agrees to pay $350 million, scrap system that undercut fees.”

UnitedHealth’s annual report for 2010 records the terms in one paragraph. The $350 million went to a fund for health plan members and out-of-network providers for procedures performed since March 15, 1994. The court gave final approval on September 20, 2010, and the company paid the amount, plus interest, into escrow on October 18, 2010. The same paragraph carries one more sentence: “The agreement contains no admission of wrongdoing.”

Class action settlements are compromises. Money moves, claims are released, and the parties go home. A settlement is not a verdict.

What the record says, and what it does not

The Attorney General’s announcements are official regulator documents. They do not contain a court ruling that UnitedHealth broke the law. The New York matter ended by agreement, and the class action ended by a settlement whose text disclaims any admission. No judge or jury ever ruled on the conduct.

Why the fix was unusual

A fine goes into a general fund, and the underlying machinery keeps running.

This one pointed the money at the machinery.

The benchmark was the problem, so the settlement built a new benchmark and handed it to an outside nonprofit. FAIR Health was set up to hold the claims data and publish the rates, with no carrier as its owner.

Whether the replacement is better at the job is a separate question, and one worth measuring on its own evidence. What the 2009 record settles is narrower and stranger. For years, the number that decided out-of-network payment came from a company owned by a party to the payment. New York’s action ended that arrangement, and the parties to it agreed to fund what came next.

The Attorney General’s October 2009 release lays the whole year out as a dated list, and the first entry reads: “January 13, 2009: UnitedHealth Group Inc. agrees to shut down the Ingenix database and contribute $50 million towards the new, independent database.”