UnitedHealth Group had an expensive week. The Minnetonka-based health insurer agreed Thursday to hand over $350 million to settle class action lawsuits brought by several groups, including the American Medical Association.
The suits alleged that a database run by a UnitedHealth subsidiary manipulated reimbursement rates for out-of-network medical services and defrauded consumers. The settlement comes two days after UnitedHealth agreed to close two of its databases and cough up $50 million to fund a new, independent one.
The suits took issue with a database run by Ingenix, one of UnitedHealth's subsidiaries. UnitedHealth and other insurers used the database to set payment rates for out-of-network providers.
Stanley Grossman represented lawsuit plaintiffs, including the American Medical Association, state medical societies and unions such as the New York State United Teachers.
"Normally, when a member of a health plan goes to an out-of-network doctor, you're entitled to certain reimbursements based on the 'reasonable and customary' fees charged by doctors of like experience in that particular geographical area," Grossman said.
The Ingenix database contained information on doctors' fees from around the country. Grossman said UnitedHealth and other insurers relied on the Ingenix database to calculate reimbursement rates.
"The major claim is that that database was flawed and resulted in underpayments to doctors and to their patients," he said.
Grossman said the vast numbers of plaintiffs were under reimbursed by only a small dollar amount. But others were owed tens of thousands of dollars.
The AMA said the $350 million settlement is the biggest of any class action suit against a single U.S. health insurer.
UnitedHealth did not admit wrongdoing in the settlement.
In a statement, the health insurer said, "UnitedHealth Group believes it is in the best interests of the company to resolve these matters and move forward."
In February, the office of New York attorney general Andrew Cuomo said a six-month investigation found Ingenix "operates a defective and manipulated database."
Earlier this week, UnitedHealth made a deal with Cuomo's office to close two databases under scrutiny. As part of that deal and today's settlement, the company also said it would chip in $50 million to fund a new database, which will be run by a nonprofit organization. Another health insurer, Aetna, also reached an agreement with Cuomo to pump $20 million into the project. Thrivent Financial for Lutherans portfolio manager David Heupel said UnitedHealth's settlements seem prudent. He said the databases in question only accounted for a small portion of UnitedHealth's overall business, so shutting them down won't be a big deal. And, he said the company can swallow the combined costs of the two settlements without too much trouble.
"Bottom line is, it's $350 million on top of the $50 million in New York," Heupel said. "It's certainly not chump change, but these are relative numbers United can handle.
"I think today's actions mitigate the headache that this was going to lead to. They're removing this overhang from the stock and the concern it may have brought that there may be a deeper or broader issue here. I think it's a net positive for United."
The proposed class action settlement is subject to court approval. UnitedHealth could face consequences in other states, as well. The Connecticut attorney general's office said earlier this week that it was continuing its investigation into Ingenix.
UnitedHealth's share price rose 3 percent today.