:: PHCS Provider Reimbursement Controversy Affects ERISA Self-Funded Health Plans
The investigation by New York Attorney General Andrew Cuomo into the protocols used by managed care companies to calculate reasonable and customary charges will likely have an effect on self-funded health plans and benefit administrators as well. The controversy promises to be technical, political and litigious.
The Database Concept
Ingenix, a subsidiary of United Healthcare Group, operates a proprietary database system known as the “Prevailing Healthcare Charges System.” PHCS purportedly derives a percentile -segmented survey of “usual and customary” charges by factoring in insurers’ billing information for similar types of medical services.
The Health Insurance Association of America (HIAA) actually developed the PHCS. The HIAA sold the database to Ingenix in 1998. As developed by Ingenix, the product has been marketed to a wide variety of clientèle in the public and private sector.
The Accusations
The New York Attorney General alleges that the database is manipulated such that medical provider charges are understated. This affects providers who are not parties to a managed care agreement with the insurer as well as patients/insureds who must pay the balances on charges not covered.
From the news release:
The six-month investigation found that Ingenix operates a defective and manipulated database that most major health insurance companies use to set reimbursement rates for out-of-network medical expenses. Further, the investigation found that two subsidiaries of United (the “United insurersâ€) dramatically under-reimbursed their members for out-of-network medical expenses by using data provided by Ingenix.
Under the United insurers’ health plans, members pay a higher premium for the right to use out-of-network doctors. In exchange, the insurers promise to cover up to 80% of either the doctor’s full bill or of the “reasonable and customary†rate depending upon which is cheaper.
The Attorney General’s investigation found that by distorting the “reasonable and customary†rate, the United insurers were able to keep their reimbursements artificially low and force patients to absorb a higher share of the costs.
Effect On Self-Funded Plans
Other managed care companies use the Ingenix database and, in fact, Cuomo has issued 16 subpoenas to other large insurers pertaining to this issue. Most self-funded health plans use the Ingenix data, so they also stand to be affected by any adverse determinations as to the accuracy of the data.
Prospects For Resolution
The issues are sufficiently complex to sustain a long and expensive battle over the issue. Any statistical presentation of data involves assumptions, no matter how objective the methodology employed. Litigation over reasonable and customary charges is by no means a new phenomenon, and experience has shown that clear answers are hard to come by.
I expect the use made of the “Relative Values for Physicians” to derive data will be an issue. The labor theory implied by this construct has been controversial for years. Further, accounting for outliers, segmentation of geographic areas, differences in physician specialties, and currency of research and subscription data will all likely receive a thorough critique.
In the meantime, third party administrators and self-funded employers should not assume that the scope of this dispute will only include the large MCO’s. On the contrary, any flaws proven in this reimbursement methodology will have an impact on virtually all self-funded plans.
Moreover, other attorneys general are likely to follow New York’s lead and launch investigations in their states. (Consider the similar chain of events in the broker commission litigation.) Employers and TPA’s should act now to assess how they manage their out-of-network charges with a view to developments in this controversy.
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