PHOENIX - Attorney General Kris Mayes is accusing major health insurance companies of engaging in illegal price fixing she says profited the companies at the expense of patients and their doctors.
In a new lawsuit announced Monday, Mayes said the companies conspired with each other, at least indirectly, to decide how much they would reimburse doctors and hospitals for certain medical procedures. The attorney general said they did that by sharing information - she says illegally - about what level of payment medical providers were willing to accept.
Mayes said they did this by providing data about their own payment practices with a company known as MultiPlan. That company, she said, then created an algorithm that was fed back out to participating insurers, telling them how much - or how little - they needed to pay.
And that, said Mayes, amounts to an illegal cartel designed to fix payments.
“Instead of competing with each other, instead of making independent decisions about payments, they allegedly used the same data and the same tools, which artificially lowered payments across the entire health insurance industry and health care industry,” she said.
The most immediate result, Mayes said, was that health care providers - doctors and hospitals - were paid far less than what they say it actually costs to deliver care. And that, in turn, left providers to either absorb the difference or bill the patients.
She put the overall losses for Arizonans in the “billions of dollars” range, and said individual patient losses could be in the tens of thousands of dollars.
But the attorney general said it will take the lawsuit to ferret out the specifics.
Who Is Affected
What Mayes called a “scheme” does not affect everyone.
Generally speaking, those who have coverage through health-maintenance organizations are part of a plan where the doctors in the network have agreed, ahead of time, to accept what the insurers will offer. But patients are limited to getting care from those in network.
Also largely unaffected are those who have preferred-provider organizations, which enable them to get care from virtually any provider - but only if they use in-network providers.
But Mayes said that people purchase PPO plans - and pay more - specifically because it provides more flexibility in where they can get their care. What this scheme leaves, she said, is those same patients then having to pay even more for their care when their doctors and hospitals don’t receive what they have billed from the insurers.
It also can affect those in HMOs who may need care while traveling and are seen by out-of-network providers.
Dr. Andrew Carroll, a Chandler family practice doctor, said there are other situations where people who have bought coverage could be stuck with surprise bills.
For example, he said, there are only a handful of specialists who can deal with bone cancer in the entire state. And Carroll said if none of them are part of an insurance network - something he said is not unusual for certain specialists - that leaves the patient on the financial hook for needed treatment, such as removing a cancerous leg, and stuck with whatever the patient’s insurer will not pay the doctor.
Defendants and Response
The sole immediate response to the lawsuit came from CVS, the parent company of Aetna, one of the defendants in the case.
“We deny the allegations and will defend ourselves vigorously,” said spokesman Phillip Blando.
Other defendants include Humana, Cigna, UnitedHealth, Centene, Molina Healthcare, and two subsidiaries of Blue Cross.
How the Algorithm Works
Mayes called what is happening “another example of old-fashioned price fixing using new technology.”
“But it is against the law, all the same,” she said.
It starts, Mayes said, with insurers relying on MultiPlan to set their reimbursements instead of each one making that decision independently, something she said they used to do.
“And they let MultiPlan’s algorithms - the same algorithm used by their competitors - do it for them,” the attorney general said.
But Mayes said the problem is bigger.
“That algorithm produced unreasonably low payments for medical services,” she said, with no differential based on who provided the service, how complex the case might be, or even the community in which the care was provided.
“Because every insurer used the same algorithm and the same data inputs, they all paid below the customary fair amounts,” Mayes said. “Competition disappeared in the state of Arizona.”
It’s even more insidious, the attorney general said. She said MultiPlan collects a percentage of the savings it generates, a figure she said can be as high as 12%.
“This arrangement incentivizes MultiPlan to generate the lowest health care provider compensation possible, regardless of whether the rates applied are usual, customary, or reasonable,” the attorney general said.
“The lower MultiPlan’s algorithms depress the prices for a health care provider’s services, the more the client-payor saves, and the greater MultiPlan’s fee,” the lawsuit states. “This incentivizes the cartel to set prices for health care goods and services as low as possible and leaves providers and patients to absorb the significant difference in the amount paid to providers compared to the cost and value of the services delivered.”
Employers May Also Benefit
As it turns out, it may not be just the insurers who benefit. A spokesman for the Attorney General’s Office noted that some employers purchase coverage for their employees through one of the insurance companies that used the algorithm, and said the system could mean lower costs for employers who, through the insurer, are paying less for procedures.
Carroll acknowledged that doctors do some maneuvering themselves to curb their losses. He said that can take the form of submitting bills for specific procedures in higher amounts than a customary cost, knowing that the amount will be reduced.
