Out-of-Network Payment Practices

NY Times Editorial, Published: April 7, 2009

There has been a justifiable cloud in recent years over the way the insurance industry decides how much to pay for the services of doctors who are outside a company’s network. The procedures are rendered suspect by conflicts of interest and look as if they have been manipulated to shortchange patients by hundreds of millions of dollars over the past decade.

A tough settlement negotiated between New York’s attorney general, Andrew Cuomo, and the UnitedHealth Group early this year will clean up much of the mess — not only in New York but in other states as well. Still, there are loose ends that need attention, so it is helpful that the Senate commerce committee has held two hearings to explore the need to expand and secure what Mr. Cuomo has achieved.

The hearings were a useful reminder of how badly the industry behaved in using a UnitedHealth subsidiary to calculate the “reasonable and customary” charges by physicians in a particular region. When patients leave the network, insurers typically pay about 70 percent of these charges and the patient pays the remaining 30 percent — plus any additional amount charged by a doctor above the supposedly reasonable charge.

Linda Lacewell, who led Mr. Cuomo’s investigation, testified that the industry engaged in fraudulent and deceptive practices to understate the “reasonable and customary” rate and thus keep its reimbursements low. Although the industry denies any such wrongdoing, UnitedHealth agreed to cough up $350 million to settle a class-action suit and agreed to shift responsibility for the calculations to an independent nonprofit organization. Eleven insurers, including some of the largest, have agreed to help finance the new database and use its findings wherever they operate.

That should go a long way toward cleaning up dubious practices, and New York is working on a new regulation to codify what insurers must do. But New York’s settlement won’t reach all insurers in all states. The Senate commerce committee will need to explore what further steps may be required to force insurers to use either the new database or some other measure that is reliable and free of conflicts of interest. All insurers should enable customers to determine, in advance, how much they will have to pay for services outside their network.