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UnitedHealth to Settle Over $400 Million in Manipulated Payments to Doctors

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From Bloomberg:

By Avram Goldstein and Karen Freifeld

Jan. 15 (Bloomberg) — UnitedHealth Group Inc., the biggest U.S. health insurer, said it will spend $400 million to settle allegations it has manipulated payments to doctors and patients for the last 15 years.

The company agreed to put $350 million into a class-action restitution fund to pay physicians and policyholders for services provided by out-of-network providers, the company said in a statement today. On Jan. 13, the Minnetonka, Minnesota-based insurer settled allegations from New York Attorney General Andrew Cuomo by paying $50 million and transferring to a nonprofit group its database that set the amount to be reimbursed when patients used doctors outside their network.

UnitedHealth has been battling the largest physician group, the American Medical Association, over out-of-network costs since 2000. The settlement affects less than 10 percent of health benefits because most policyholders use their health plan’s network providers to minimize out-of-pocket expenses. Still, the AMA said it stopped rampant cheating.

“UnitedHealth Group has recognized the importance of restoring its relationship with patients and physicians by ending use of a rigged database,” said AMA President Nancy Nielsen in an e-mail statement. “We must hold insurers accountable to their obligations.”

Aetna Inc., the third-largest health insurer, separately agreed today to pay $20 million to settle a related case with Cuomo.

Aetna, of Hartford, Connecticut, gained 16 cents to $26.27 at 4:15 p.m. in New York Stock Exchange composite trading. Minnetonka, Minnesota-based UnitedHealth rose 81 cents to $24.89.

Ingenix Subsidiary

UnitedHealth’s Ingenix subsidiary is hired by hospitals, employers and competing insurers to improve the handling of medical claims, detect fraud and track patients’ prescription drug use.

Ingenix maintains the out-of-network fee database to determine the “usual and customary” fees paid when policyholders go to doctors outside a network of providers who negotiate discounted fees. Hundreds of insurers rely on the database, the company said last year. The database generated less than 1 percent of Ingenix revenue, UnitedHealth said last year.

“With this agreement, the tide is turning against the corrupted reimbursement system that took hundreds of millions of dollars from the pockets of patients nationwide,” Cuomo said in a statement. “Health insurers will no longer be able to distort their data, leaving patients with unfair bills.”

Aetna’s Payment

Aetna’s $20 million payment will be added to the $50 million paid by UnitedHealth to fund the nonprofit database. The money will go to “a qualified nonprofit organization that will establish a new, independent database to help determine fair out- of-network reimbursement rates for consumers,” Aetna said in a statement.

“We recognize the attorney general’s concern about the conflicts,” said Donald Liss, a regional medical director for Hartford, Connecticut-based Aetna, at a press conference today.

The UnitedHealth class-action settlement agreement “contains no admission of wrongdoing,” United Health said in today’s statement. The company will pay the $350 million from cash on hand and book the charge for the 2008 fourth quarter.

‘Dent’ in Cash

“They can handle this,” said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut, in a telephone interview today. “It puts a little bit more of a dent in the $2 billion of cash that the company has, but they are expected to generate $4 billion in cash flow in 2009 even in this depressed environment.”

Cuomo, who subpoenaed at least 15 other companies in the investigation, previously said insurers used Ingenix’s “defective and manipulated” database to set artificially low reimbursement rates.

“We will not stop until the entire industry has been reformed in this regard,” Cuomo said at the press conference. Other insurers are expected to agree to add funds to the nonprofit entity, a person familiar with the probe said Jan. 12.

Cuomo said he plans to get the nonprofit entity running in six months. He said it would develop a Web site where, for the first time, consumers could find out in advance how much they may be reimbursed for common services by out-of-network doctors in their area. A manager hasn’t been selected, Cuomo said.

When patients visit doctors who aren’t in their insurer’s network, the companies typically cover 80 percent of “reasonable and customary” charges.

In one example, Cuomo’s office said that when $200 was a fair-market rate for a 15-minute doctor’s visit for a common illness, Ingenix said it was $77. UnitedHealth would pay $62 when it should have paid $160, leaving the consumer with a $138 bill.