Behind the UCR Curtain: Looking for Transparency in Insurance Reimbursement


“Charge for procedure exceeds the usual and customary rate.” For many, this is a familiar phrase seen on a health insurer’s explanation of benefits (EOB). For some, it means an unexpected debt they must pay to a physician or hospital for medical procedures or services that they thought were supposed to be fully covered by health insurance.

The method that health insurance companies use to determine “usual, customary and reasonable” (“UCR”) rates for out-of-network services is shrouded in secrecy. Attempt to challenge what your insurer agrees to pay and you are likely to encounter the proverbial brick wall. Without knowing how your insurer calculates UCR rates, it is difficult, if not impossible, to persuade your insurer to make complete payment to your physician or hospital.

“Usual, Customary and Reasonable”

Healthcare insurers, such as Aetna or UnitedHealth, contract with healthcare providers, such as doctors or hospitals, to specify the rates they will pay for their insured’s medical services and procedures. Contract rates are typically set rates (such as a per diem) or a percentage of the provider’s stated charges (known as “billed charges). Without a contract, however, the provider is considered “out of network.” In that case, the insurer limits payment to the provider to the reasonable value of the healthcare services provided. The most common method used to determine reasonable value of services is known as UCR charges. Depending on the insured’s health insurance policy, the insurer will typically reimburse an out-of-network provider either a percentage of the billed charge or the UCR rate, whichever is less. The healthcare provider then bills the patient directly to collect the remaining balance.

Few states define the terms “usual, customary and reasonable” and even fewer have regulations on the methodology used to determine UCR charges. Typically, a UCR charge is defined as the general prevailing cost of that service by a majority of health providers of the same discipline within the same geographic area. To determine UCR charges, insurers use healthcare billing information collected from privately-owned databases. Large insurers such as UnitedHealth and Aetna use Ingenix, the nation’s largest provider of health care billing information and a wholly-owned subsidiary of UnitedHealth. Recently, the New York Attorney General accused Ingenix of manipulating data to determine UCR charges that were too low.

UnitedHealth and Aetna Settlements

On January 13, 2009, New York Attorney General Cuomo announced a settlement agreement with the nation’s second largest health insurer, UnitedHealth, regarding Ingenix. The settlement is a result of an investigation led by AG Cuomo into allegations that UnitedHealth has a conflict of interest in owning and operating the Ingenix databases in connection with determining UCR rates.

Ingenix compiled its database from various insurers and other entities. Health insurers used Ingenix as a benchmark in determining UCR rates. Because United reimburses out-of-network providers a percentage of the UCR rate, AG Cuomo found UnitedHealth has a financial incentive for Ingenix to understate the UCR rate to reduce the amount it must pay for claims. If Ingenix understated UCR rates, then insurers throughout the industry paid out-of-network providers less than they should have, patients paid more out-of-pocket than they should have and doctors and hospitals were paid less than they should have.

Two days following the UnitedHealth settlement, AG Cuomo found that other health insurers have a conflict of interest in using the Ingenix databases in determining UCR rates. AG Cuomo announced a settlement agreement with Aetna, the nation’s third largest insurer. AG Cuomo found that Aetna’s use of the Ingenix databases also created a conflict of interest.

As part of these settlements, UnitedHealth agreed to close the Ingenix database of healthcare billing information. UnitedHealth agreed to pay $50 million and Aetna agreed to pay $20 million toward a new, independent database run by a qualified nonprofit organization. The organization will be the sole decision-maker with respect to all data protocols and methodologies. It will make rate information from the database available to health insurers and will develop a website for providers and consumers to find out in advance how much insurers will pay for common out-of-network medical services in their area. If executed properly, the hope and expectation is that it will bring much-needed transparency to health care.

Continued Challenges in the Use of UCR Charges

UCR charges will continue to be an issue in litigation. The New York AG settlement will lead to more litigation over whether insurers have been underpaying for out-of-network services, whether patients overpaid for services and whether uninsured patients should also benefit from UCR rates.

On February 9, 2009, The American Medical Association (AMA) filed two suits in New Jersey federal court accusing Aetna and Cigna of employing a scheme to determine out-of-network reimbursement rates which lead to underpaying physicians and forcing patients to pay undue costs for out-of-network medical services. The medical associations of several states including Texas are suing the companies as well, as are individual physicians. The lawsuits seek to reform the payment system based on skewed data provided by Ingenix in setting reimbursement rates and to obtain relief for physicians who claim underpayment due to the flawed Ingenix database.

Another problem is that UCR charges create conflicts between patients and their health providers. When an insurer limits what it pays an out-of-network physician or hospital to UCR rates, the patient may be left responsible for paying the balance of the bill. Because of the price discrepancy, the patient may accuse the physician or hospital of overcharging. If the patient won’t pay, the provider must either pursue collection against the patient or accept an underpayment. This kind of payment conflict ultimately undermines the trust between a patient and his or her health provider.

Reproduced with permission from Headnotes, a publication of the Dallas Bar Association, March 2009, Vol. 33, No. 3.

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