In another in the growing roster of legal challenges to the way insurance companies conduct business, the American Medical Association
(AMA) and the Medical Society of the State of New York (MSSNY) have sued two of the country’s largest insurers for using "flawed" data to set fees and physician reimbursements.

In March the two organizations filed a class-action lawsuit against Metropolitan Life Insurance Company and United HealthCare Corporation, charging the firms with violating the terms of their contracts with New York physicians.

While the AMA has increasingly turned to the legal system to fight the intrusion of managed care companies into medical decision making, this is the first nationwide class-action suit it has filed over insurance-company practices.

The AMA and MSSNY allege that by using faulty data about "usual and customary" charges for medical services in a geographic area, the insurance firms have been able to reduce payments for those services. The consequence of this is that patients are left to foot more of the bill for their medical care than they would if insurers used correct data. The insurer reimburses out-of-network physicians for 80 percent of the usual and customary charge in Met Life’s Empire Plan, and the patient is left to make up the difference unless the physician absorbs some of the unreimbursed charge.

Most insurance company contracts contain language under which the firms can use the lowest of three benchmarks to determine how much they will reimburse nonparticipating physicians for a procedure or service—a physician’s actual charge, a physician’s usual charge, or the "reasonable and customary" charge for comparable services in a physician’s geographic region.

The lawsuit charges that Metropolitan Life and United, with which it has contracted to manage the plan at issue, relied on inaccurate data on reasonable and customary charges to set many of their reimbursement amounts. The data were provided to the companies by the Health Insurance Association of America (HIAA), which no longer stands behind the accuracy of those data, the suit points out. According to the suit, the database uses aggregate figures that omit higher fees that some physicians in a particular area charge while including lower or noncomparable charges from other geographic areas.

The HIAA database, known as the Prevailing HealthCare Charges System, was compiled in 1997 and 1998, after which it was purchased by a subsidiary of United Healthcare. The lawsuit says that prior to United’s purchase of the database, the HIAA informed the company that it was not suitable for setting usual and customary charges. The suit quotes a disclaimer from the HIAA on the subject, stating that the data are for "informational purposes only, and the HIAA disclaims any endorsement, approval, or recommendation of the data. There is neither a stated nor implied ‘usual and customary’ charge."

Commenting on the lawsuit, AMA trustee Donald Palmisano, M.D., called it "one more example of insurance companies playing by their own rules without regard to patients or the legitimate costs required to care for them." He said he has no doubt this insurance company practice is the rule rather than the exception.

MSSNY President John Ostuni, M.D., explained the organizations’ motivation for filing the lawsuit. "We can no longer ignore the fact that insurance companies are reimbursing patients and physicians what they want to pay for covered services. . .not what they have contracted to pay," Ostuni stated. "When patients or physicians file a claim with their medical insurance carrier and get back significantly less than what they think they should get, it raises the question as to how the insurance carrier made that decision on payment. That’s what this litigation is about. When you pay for insurance coverage, you should be reimbursed for what you contracted for, not for what the insurance carrier decides to pay."

An individual physician, surgeon Michael Attkiss, M.D., and a plan subscriber, Matthew Crema, one of Attkiss’s patients, have joined the two organizations in bringing the suit. They have sued on behalf, respectively, of all providers and subscribers who have been affected by the contract breach with which the suit charges the insurance companies.

In February the AMA and the Medical Association of Georgia filed a class-action suit against Aetna U.S. Healthcare over delayed payments to physicians. That suit alleges that the company, in violation of contract terms, delayed payments to physicians and used the funds to increase its profits.

Georgia law requires insurance companies to pay claims as soon as it receives them and mandates an 18 percent penalty if they fail to do so. The two medical organizations are asking the Fulton County Superior Court to declare the firms’ conduct illegal and to issue an injunction barring delayed payments to physicians.