[Senate Hearing 111-37, Part 1]
[From the U.S. Government Publishing Office]

                                                 S. Hrg. 111-37, Part 1

                      WHAT THEY PAID FOR?--PART I



                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE


                             FIRST SESSION


                             MARCH 26, 2009


    Printed for the use of the Committee on Commerce, Science, and 

50-466 PDF                WASHINGTON : 2009
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                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota             SAM BROWNBACK, Kansas
TOM UDALL, New Mexico                MEL MARTINEZ, Florida
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
                    Ellen L. Doneski, Chief of Staff
                   James Reid, Deputy Chief of Staff
                   Bruce H. Andrews, General Counsel
   Christine D. Kurth, Republican Staff Director and General Counsel
                  Paul Nagle, Republican Chief Counsel

                            C O N T E N T S

Hearing held on March 26, 2009...................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Lautenberg..................................     3
    Prepared statement...........................................     3
Statement of Senator McCaskill...................................    30
Statement of Senator Udall.......................................    32
Statement of Senator Begich......................................    35
Statement of Senator Klobuchar...................................    37
Statement of Senator Pryor.......................................    39
Statement of Senator Snowe.......................................    41


Linda A. Lacewell, Counsel for Economic and Social Justice and 
  Head of the HealthCare Industry Taskforce, Office of the New 
  York State Attorney General....................................     4
    Prepared statement...........................................     7
Nancy H. Nielsen, M.D., Ph.D., President, American Medical 
  Association....................................................    10
    Prepared statement...........................................    11
Chuck Bell, Programs Director, Consumers Union...................    20
    Prepared statement...........................................    22


Mary Reinbold Jerome, M.D., Yonkers, New York, prepared statement    53

                      WHAT THEY PAID FOR?--PART I


                        THURSDAY, MARCH 26, 2009

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:34 a.m. in 
room SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller, Chairman of the Committee, presiding.


    The Chairman. Good morning, everybody. Today's hearing is 
the first of two hearings--which works out very well, the setup 
of the two hearings--that we're holding to look at deceptive 
payment practices that the health insurance industry has gotten 
away with for the last decade, probably longer. The victims of 
this deceptive practice were probably most of the people 
sitting in this hearing room today, along with the more than 
100 million Americans who pay for health insurance coverage 
that allows them to go outside of their provider network for, 
you know, medical care. Having the ability to get health care 
service outside of the network is a very important option for 
American consumers, and it's an option that they pay for--and 
they know they're going to pay for that--in the form of higher 
premiums, higher deductibles, and higher coinsurance payments.
    Now, Dr. Jerome should be sitting here today. We are--Dr. 
Mary Jerome--she's a resident of Yonkers, New York. She has 
been fighting ovarian cancer since 2006. She had planned to be 
here, but she just can't physically make it, today. But, I'm 
still going to say something about her.
    According to her testimony, Dr. Jerome received her health 
care coverage through a point-of-service plan, which encouraged 
her to get care within a provider network, but also allowed her 
to see out-of-network providers, if she so desired and it was 
    So, here's what she says in her testimony, ``I had always 
been confident that paying for the out-of-network option 
provided peace of mind with respect to the financial burdens 
associated with catastrophic medical costs.''
    After her cancer diagnosis, Dr. Jerome and her in-network 
primary-care physician decided that she needed to be treated at 
a health care provider that was outside of her network; that 
one being in Memorial Sloan-Kettering Hospital in New York 
City. Dr. Jerome knew she was going to have to pay some portion 
of these costs out of her own pocket, but she also assumed, in 
good faith, that the treatment was going to be covered by her 
    What we're going to learn today is that American consumers 
like Dr. Jerome, people who have been paying higher premiums 
for the choice to see out-of-network doctors, have not been 
getting what they have been paying for. We're going to hear 
testimony suggesting that the health insurance industry has 
been systematically low-balling American consumers. And this is 
a very upsetting situation, one which has been revealed in New 
York. And if we have to have 50 hearings for 50 states, I'll be 
glad to do that, too.
    They have been promising, these insurance companies, to pay 
a certain share of the consumers' medical bills, but they have 
been rigging health care-charge data to avoid paying their fair 
share. The result is that billions of dollars in health care 
costs have been unfairly shifted to Dr. Jerome and millions of 
other American consumers like her; as I said, probably many in 
this room.
    So, here's how it works. The insurance company generally 
promises to reimburse out-of-network medical services at what 
they refer to in the industry as the ``usual, customary, and 
reasonable rate.'' Usually, just the word ``usual and 
customary.'' Well, the problem is that it's been the insurance 
industry who has been deciding what is ``usual, customary, and 
reasonable,'' what that means. They make that decision. 
Consumers have not had any input. Doctors and other health care 
providers have not had any input. The chairman of the American 
Medical Association has not had any input. Only the insurance 
companies have been getting to decide what's reasonable, which 
is like letting the fox define ``usual, customary, and 
reasonable'' in the henhouse.
    You understand that.
    Senator McCaskill. I do. We have both, in Missouri. Fox and 
    The Chairman. So, the good news is that, thanks to a series 
of lawsuits and a year-long investigation by the New York 
Attorney General's Office, the insurance companies that operate 
in New York, including, most importantly, UnitedHealth Group, 
and its medical information subsidiary, Ingenix, have been 
forced to change the way they do business. And Ms. Lacewell has 
a lot to do with that.
    Conclusion--our goal for today is to get an update on how 
the reforms proposed in New York are being implemented, and to 
understand how the deceptive practices uncovered in New York 
have been harming customers in the other 49 States.
    I'm looking forward to this testimony, especially at a time 
when our country is going through all kinds of murderous 
economic situations for people to pay any kind of health 
insurance at all.
    I would, finally, like to note that missing from our 
hearing today is one group of stakeholders who played an 
indispensable role in creating and perpetuating this unfair 
reimbursement system, but who will also play an essential role 
in changing it, and that is a little group called the insurance 
    On March 9, I invited the CEOs of UnitedHealth Group and 
Ingenix to testify at this hearing, because we wanted to hear 
their side of the story, because we're always fair here. 
Because UnitedHealthcare told us that their CEO, Mr. Stephen 
Hemsley, was not available to testify today, we agreed to hold 
a second hearing, next week. So that's what we're going to do 
on Tuesday. That's very important, for observers and for press 
and for members here to know that.
    It's perfect. We get--we have the good guys, and then we 
have the other guys.
    The Chairman. The good guys are today, the other guys--
you're going to set up next Tuesday.
    So, at 10 a.m. next Tuesday, we'll be holding a hearing, 
during which we hope to gain a better understanding of the 
insurer's perspective.
    Now, I, at this point, usually call on the Ranking Member, 
and I don't see one, so what I would like to do is call--is 
simply to ask you to present your testimony, unless any of our 
members would care to make a statement. Short statement. Very 
short statement.

                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. It just keeps getting shorter?
    The Chairman. Yes. Because I was long.
    Senator Lautenberg. You're very generous to make that 
offer. In a place like this, people don't usually make that 
kind of an offer, so I will take advantage, for a moment, of 
the Chairman's latitude with allowing just a short statement.
    Mr. Chairman, as I'm sure you mentioned, in New Jersey and 
across the country, people are working harder than ever, still 
struggling to get by. And the worst thing to do is to have to 
be caught in the middle of a scheme--for them, for the 
individual--that permits the insurance companies to siphon off 
more of the profit than they're entitled to. And they do pretty 
well in that provider--health provider business.
    And so, we're pleased to have you here. We've had terrible 
problems, the State of New Jersey. In 2000-2007, premiums in 
New Jersey rose 71 percent, while workers' earnings increased 
15 percent. So, the health care costs in New Jersey, seeing a 
doctor, getting a prescription, need grew 50 percent from 1999 
to 2008.
    So, we're pleased to have--that you chose to have this 
hearing, Mr. Chairman, and that we have a chance to learn more 
about it from people who are directly involved. And we thank 
you for being here.
    Thank you very much.
    [The prepared statement of Senator Lautenberg follows:]

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman, in New Jersey and across the country, people are 
working harder than ever before, but still struggling to get by.
    They are being forced to make devastating choices between paying 
their mortgage and paying for health care.
    In these difficult economic times, the cost of health care is 
putting a tremendous strain on families in my state.
    Between 2000 and 2007, health care premiums in New Jersey rose 
seventy-one (71) percent while worker's earnings increased just fifteen 
(15) percent.
    In addition, total health care costs in New Jersey--from seeing a 
doctor to getting the prescriptions people need--grew fifty (50) 
percent from 1999 to 2008.
    So when we learn that the insurance industry may be manipulating 
data to make consumers overpay for their health care, Congress has 
reason to be concerned and Americans have reason to be angry.
    One patient in New Jersey was left owing thousands of dollars in 
health care bills for her breast cancer treatment because her insurance 
company cooked the books to cover far less of the cost than it should 
    This New Jersey patient--like many other patients and families--was 
forced to pay for care that her insurer should have covered under the 
terms of her insurance plan.
    And if that wasn't bad enough, the so-called ``independent 
organization'' that was supposed to protect all patients by objectively 
determining how much of the cost should be covered by insurance was 
owned by an insurance company.
    That arrangement was a conflict of interest and undermined all 
Americans' faith in the health care system.
    I'm pleased that this problem has been resolved, but we must remain 
vigilant on behalf of consumers.
    People are willing to do their part. They are willing to pay a fair 
price for the health care they get.
    But Americans who work hard to pay their premiums rightfully expect 
their insurance companies to keep up their end of the bargain.
    Along with my colleagues, I will fight to keep insurance companies 
working for Americans--not against them.
    I look forward to hearing from today's witnesses and seeing how we 
can stop consumers from getting a raw deal.

    The Chairman. Thank you, Senator Lautenberg.
    Any other statements?
    Senator Udall. Let's get to the witnesses.
    The Chairman. Well, I like that.
    The first one is Ms. Linda Lacewell. And this is her title. 
She is Counsel for Economic and Social Justice, and Head of the 
Healthcare Industry Task Force, and she knows her business 
very, very well. Obviously, as I indicated, Mary Jerome--Dr. 
Mary Jerome, could not be here. Dr. Nancy Nielsen, President of 
the American Medical Association, with the incredible fortune 
of having been born in Elkins, West Virginia.
    Dr. Nielsen. That's right.
    The Chairman. And Mr. Chuck Bell, Programs Director for the 
Consumers Union.
    So, we look forward to your statements, starting with you, 
Ms. Lacewell.

                        ATTORNEY GENERAL

    Ms. Lacewell. Thank you very much, Mr. Chairman. Thank you 
to the Committee, for inviting me here today with respect to 
this hearing. It's a pleasure to be here, and it is my 
privilege to represent the Attorney General of the State of New 
York, Andrew Cuomo, at this hearing.
    For the past year, the Attorney General in New York has 
been conducting an industry-wide investigation with respect to 
the insurance industry concerning a scheme that is truly, in 
our view, staggering in scope and impact, affecting, as the 
Chairman noted, over 100 million Americans around the country--
that is one in three people in this country--a scheme run by 
the Nation's largest health insurers, as we found, which left 
working families across the country wrongly stuck with at least 
hundreds of millions of dollars in unreimbursed medical 
expenses, a scheme that ran for at least 10 years, and one that 
is finally coming to an end.
    The Attorney General is the people's lawyer and seeks to be 
responsive to their concerns. As a result of that, he travels 
the State of New York and learns what the issues are of concern 
to the people. And time and again, the primary concern raised 
by the people in the State of New York is health care and 
health care costs and whether or not they're getting the 
benefit of the bargain of their health insurance.
    A key concern raised by them with respect to health care is 
reimbursement for what is known as out-of-network medical 
costs. About 70 percent of insured Americans have a plan that 
allows them to choose their own doctor outside of the network 
of insurers--outside the network that insurers have put 
together by contract with their doctors. These consumers, it's 
important to note, do pay more; they pay a higher premium. It 
costs them more money for this right to go out of network. And 
that balance of--that bargain is an important one to ensure is 
met. And they choose to pay more for the right to go out of 
network because it is fair to say that health care can be a 
matter of life and death, and choosing a doctor is a critical 
issue in that regard.
    Under these out-of-network plans, in exchange for the 
higher premium, the insurer typically promises to pay a 
substantial portion, a huge portion, of the anticipated cost, 
which they refer to as a ``usual and customary rate.'' 
Frequently, the insurer says, ``I will pay 80 percent of what 
the usual and customary rate is.'' And that is understood to 
mean--in the industry, to mean ``the prevailing rate the 
doctors charge when they have not negotiated a lower rate with 
the insurer on an in-network basis.''
    And this is a critical consumer issue, because in the out-
of-network setting, when the insurer does not reimburse the 
entire bill to the consumer, it is the consumer who is 
responsible to the doctor to pay the balance of the bill, which 
would not ordinarily be the case in an in-network setting.
    So, our investigation sought to determine why the 
reimbursement rates to consumers were so low, who was 
determining the rates, and how, and whether, in fact, these 
rates were fair or not fair.
    We, therefore, surveyed health insurers operating in the 
State of New York, which includes some of the largest insurers 
in the country that operate in New York, UnitedHealth Group, 
Aetna, CIGNA, WellPoint, which is the largest in the country. 
And time and again we received the same answer, ``When we 
determine these rates, we are relying on this independent 
company, known as Ingenix.'' We then went to Ingenix and said, 
``How are you determining these rates?'' And time and again 
from Ingenix we received the same answer, ``Well, we collect 
fee information, billing information, from insurers around the 
country, the largest insurers that there are--United, Aetna, 
CIGNA, WellPoint, and everybody else. We take all their data, 
we put it in a database, we mix it up, and we issue these fee 
information schedules that go to the industry to determine 
usual and customary rate.''
    The natural question then became, Who is Ingenix? And on 
that question, when you look behind the curtain of this oracle 
of usual and customary rates, one finds UnitedHealth Group, the 
second largest insurer--health insurer in the United States, 
because Ingenix is a wholly owned subsidiary of UnitedHealth 
Group, making this essentially a closed-loop system of the 
health insurance industry collecting the information among 
itself, pooling the information together, all relying on the 
same rate information, a system that is impenetrable to the 
    The Attorney General found, and health insurers have since 
acknowledged, that there are conflicts of interest here, a 
picture of conflicts of interest from top to bottom, because 
each of the health insurers has a reimbursement obligation 
toward the consumer and therefore has an interest in keeping 
the reimbursement rate low.
    So, if the rates are being determined and agreed upon, 
essentially, by the insurers, and the database is based on 
their product, there is a significant danger to consumers of 
underpayment. And our investigation found that, in fact, 
Ingenix did lead to underpayments.
    The other problem that we found with this system is that 
Ingenix has been essentially a black box to consumers, who do 
not know, first of all, that it is the insurance industry 
determining what this--what these rates, and second, they don't 
know how to challenge the rates, and they are almost never 
given, by the industry, an opportunity to do so.
    It is important to note, as the Chairman did, that, 
although this issue may sound technical, it affects almost 
everyone in the country, and it has a human impact, as 
demonstrated by the story of Mary Jerome, referred to by the 
Chairman, who was stuck with tens of thousands of dollars of 
unanticipated medical costs at a time when she was fighting, 
not only for her health, but for her life.
    Having identified this problem, the Attorney General set 
about to determine an appropriate reform. And when the problem 
is framed, the answer becomes simple and clear to note, and 
that is, there must be an independent system that does not have 
the conflicts of interest that currently exist; there should be 
a database that is independent; we feel it should be run by a 
not-for-profit company associated with a university, which has 
an interest in the database being accurate, because it will 
also be used for academic research; and the system should be 
reformed in that way. And also, it is critical that consumers 
across the country get some transparency into their 
reimbursement rates so that they know ahead of time what their 
costs are going to be, what their out-of-pocket expense is 
going to be, before they shop for a doctor. And in that regard, 
it is the Attorney General's goal that there be a website 
ultimately available to consumers where they can go to find 
out, in their area, what their reimbursement rates are likely 
to be for various medical services.
    UnitedHealth Group and Ingenix have agreed to sign on to 
these reforms, and we have commended them for that, and we 
continue to do so. When the new database is ready, they will 
shut down the existing Ingenix database. They are funding the 
new, independent not-for-profit with $50 million, and the rest 
of the industry, like dominos, has quickly followed suit, and 
we have now collected about $95 million to institute these 
    We are also working closely with the New York Department of 
Insurance to make these reforms permanent, and we believe there 
is a need for a new regulation to end, once and for all, the 
conflicts of interest that derailed the existing system, and to 
bring new rigor and transparency so that this problem can never 
happen again.
    The Attorney General strongly believes that states are a 
laboratory for reforms and advancements in many areas, 
including health care, and we hope that the new regulation in 
New York will serve as a model for the Nation so that the goals 
of accuracy, transparency, and fairness in out-of-network 
reimbursement for consumers like Mary Jerome can be met.
    Thank you.
    [The prepared statement of Ms. Lacewell follows:]

   Prepared Statement of Linda A. Lacewell, Counsel for Economic and 
Social Justice and Head of the Healthcare Industry Taskforce, Office of 
                  Attorney General, State of New York
    I thank Chairman Rockefeller, Ranking Member Hutchison, and the 
Members of the Committee on Commerce, Science, and Transportation for 
inviting me to speak this morning. It is my pleasure to be here today 
on behalf of New York State Attorney General Andrew Cuomo.
    Over the last year-and-a-half, the Office of the Attorney General 
has conducted an investigation into how the health insurance industry 
reimburses consumers for out-of-network health care services. During 
the course of the investigation, we uncovered a fraudulent and 
conflict-of-interest-ridden reimbursement scheme. These deceptive, 
industry-wide practices affected millions of patients and their 
families and cost them hundreds of millions of dollars in unexpected 
and unjust medical costs.
    As the Attorney General travels around the State of New York and 
addresses local community forums, the number one concern people raise 
is health care. It is easy to see why the results of this investigation 
have struck a chord with the public. Our nation faces a health care 
crisis. In addition to the obvious problems of the uninsured and the 
underinsured, our investigation has found that under-reimbursement of 
the insured is a major problem. Until now, it has been a hidden 
problem. This is not just a problem in the State of New York. 
Nationwide, medical costs are the leading cause of individual 
bankruptcy, even though the individual usually had insurance. 
Fraudulent under-reimbursement for insured Americans is one part of 
this negative equation for consumers.
    Of insured Americans, about 70 percent pay higher premiums for the 
right to select their own doctor. That's 110 million people or 1 in 3 
insured Americans. The reasons vary. Some people want the freedom to 
make decisions about their families' health care while others cannot 
find the best physician to treat a particular condition in their 
insurer's network. Those who carry out-of-network coverage sometimes 
need it when they least expect it. Patients are admitted to in-network 
hospitals and through no choice of their own are treated by out-of-
network doctors there, resulting in anticipated, high medical costs for 
the consumers involved.
    In exchange for higher premiums, the insurer promises to pay a 
large portion of the bill when a consumer has seen an out-of-network 
doctor. Typically, health insurers promise to pay a percentage of the 
bill, often it is 80 percent, of market rate, which the industry calls 
the ``usual and customary'' or ``reasonable and customary'' rate, also 
known as ``UCR.'' The ``usual and customary'' rate is supposed to be a 
fair reflection of the market rate of doctors across the country for 
all kinds of medical services, and we found that consumers read the 
term that way.
    If the insurer does not reimburse the consumer at that level 
because the insurer did not deem the doctor's charges to be usual, 
customary or reasonable, the consumer is responsible for paying the 
balance of the bill. As a result, consumers who choose to go out of 
network have to pay more for medical care than they anticipated. In 
this way, out-of-network policies can be a financial trap for 
consumers, leading to unexpected health care debts. Moreover, when 
health insurers fail to explain accurately or clearly what they will 
pay for out-of-network care, consumers are unable to make intelligent 
and informed decisions about their health care.
    I will take the next few minutes to elaborate on the inherent 
conflicts of interest in the consumer reimbursement system, and how we 
are moving the industry away from this self-serving model and toward 
reform of the out-of-network reimbursement system.
Conflict of Interest
    For 10 years, the ``usual and customary'' rate for the entire 
industry has been decided by one company: Ingenix. As we learned, the 
largest health insurers throughout the country use Ingenix to determine 
``usual and customary'' rates. Who is Ingenix? Early on in our 
investigation we discovered that Ingenix is a wholly-owned subsidiary 
of the Nation's second largest health insurer, UnitedHealth Group. As 
both a user of and contributor to the Ingenix database, UnitedHealth 
clearly had an interest in depressing reimbursement rates, causing 
consumers to pay more. Shortly thereafter, we learned that many other 
national health insurers also contributed their billing data to this 
database and then used the database as a benchmark for reimbursement 
rates. This resulted in the creation of a closed system, leaving no 
real options for consumers.
    Reasonable and customary rates are supposed to fairly reflect 
market rates, but our investigation revealed that Ingenix is nothing 
more than a conduit for rigged information that is defrauding consumers 
of their right to fair reimbursements for their out-of-network health 
care costs. All the while consumers are left to sort through confusing 
policy language and are then stuck with the balance of their doctors' 
bills. To make matters worse, health insurers routinely hide this 
conflict of interest from their members in obscure policy language 
making it a problem that is nearly impossible to detect.
Lack of Transparency
    During the investigation, our Office subpoenaed a broad range of 
plan documents describing out-of-network policies. Our review of these 
materials revealed a shocking lack of transparency and accuracy. Most 
insurers failed to disclose accurately and clearly what they would pay 
or how they would determine payment for out-of-network care. In one 
case, we found that a national insurer had filled an entire page with 
alternative ways of how it purported to calculate out-of-network rates 
in language that was unintelligible. As expected, none of the insurers 
accurately described the role Ingenix played in determining those 
reimbursement rates.
The Ingenix Data base Under-Reimburses Consumers
    Ultimately, our investigation found that the Ingenix schedules 
themselves, created in a well of conflicts, are unreliable, inadequate, 
and wrong--often forcing consumers to bear an even greater burden of 
the cost of care. UnitedHealth had a financial incentive to understate 
the ``usual and customary'' rate so as to reduce the amount reimbursed 
to consumers. For the same reason, other insurers had a financial 
incentive to manipulate the data they provided to the Ingenix database 
so that the pooled data would skew reimbursement rates downward. When 
combined with Ingenix's lack of incentive to audit the data it received 
and pooled, consumers were continually at risk of being under-
    As part of our investigation, in an effort to determine the level 
of accuracy of the Ingenix database, we collected and analyzed millions 
of health care bills from a variety of sources, including a range of 
insurers operating within New York State. Our analysis showed that 
insurers systematically under-reimburse New Yorkers for doctor's office 
visits and that there were wide disparities when comparing various 
regions across the State. Underpayments of up to 10 to 20 percent in 
Manhattan alone translated to millions of dollars in underpayments. 
When extrapolated across the State and the country, it is fair to say 
that the Ingenix database have caused Americans to be under-reimbursed 
by hundreds of millions of dollars over the past 10 years.
    Ingenix has been a ``black box'' for consumers who do not know 
their out-of-pocket cost of medical services before receiving them and 
has driven up costs when consumers cannot get the best value for their 
dollar before choosing a provider because they cannot comparison shop.
    Mary Jerome's story stands out in my mind and illustrates the 
point. Mary Jerome is a college professor in New York who was found to 
have ovarian cancer in 2006 and was left with tens of thousands of 
dollars in unreimbursed medical bills. Her doctor recommended she be 
treated at leading cancer center Memorial Sloan Kettering where she 
expected to pay no more than her $3,000 deductible for going out of 
network. Soon she faced bills that left her $70,000 to $80,000 in debt 
and was forced to navigate a complicated appeals process with her 
health insurer while trying to recover from a devastating illness.
    Cases like Mary Jerome's inspired us to think more broadly about 
the kinds of industry reforms that were needed to protect patients, who 
could be focused on recovering physically instead of having to spend 
time and energy trying to recover their health care costs.
    After consulting with a number of stakeholders, including consumer 
advocates, representatives from the physician community, and health 
care economists, our primary objectives became clear. First, the 
``usual and customary'' or market rates for health care charges have to 
be determined by an independent third party free of conflicts of 
interest, using a fair, objective, and reliable database. Second, 
before consumers choose an out-of-network doctor, they should have a 
range or estimate of what it will cost them. Consumers need more 
information about how they will be reimbursed and they need it earlier 
in the decision-making process.
    To resolve this industry-wide issue, we zeroed in on the source of 
the problem: Ingenix and UnitedHealth, Ingenix's parent company. Once 
UnitedHealth acknowledged that there were inherent conflicts of 
interest in the reimbursement system, it not only agreed to stop making 
the Ingenix database available to other insurers for purposes of 
calculating usual and customary rates, but also agreed to contribute 
fifty million dollars for the creation of a new, independent database 
that will become a new industry standard. After the agreement with 
UnitedHealth was announced, our Office quickly secured agreements with 
the other leading insurers around the country, as well as the largest 
insurers in New York State, to stop using Ingenix to calculate out-of-
network reimbursement rates and contribute resources to the new 
database. To date, in addition to the agreement with UnitedHealth, we 
have also entered into agreements with WellPoint, Aetna, CIGNA, MVP 
Health Care/Preferred Care, Independent Health, HealthNow, CDPHP, 
Excellus, GHI/HIP (EmblemHealth), and Guardian Life Insurance Company.
    The funds we collect will go toward the creation of a not-for-
profit entity that will operate the new, independent database designed 
to fairly reflect the market and create a website available to 
consumers to provide reimbursement information so that consumers can 
make more informed decisions and better manage their health care costs 
before they shop.
    The not-for-profit entity will set up the database, which will:

   be a credible source for the industry and consumers

   not be controlled by the industry

   determine rates fairly reflecting the market, and

   collect information that goes beyond the limited information 
        collected and provided by Ingenix.

    These industry reforms will bring accuracy, transparency, and 
independence to a broken system and keep hundreds of millions of 
dollars in the pockets of over one hundred million Americans.
Need for Additional Regulation
    Our office has also been working with the New York State Department 
of Insurance to revise and improve the rules regarding consumer 
    We believe there is a need for a new regulation to end once and for 
all the conflicts of interest that derailed the previous system and to 
bring new rigor to the system. First, insurers should not be permitted 
to use as a source or basis for determining usual and customary rate 
any entity that has a pecuniary interest in the rates. That includes 
any insurer, HMO, medical association, or health care provider. Second, 
insurers should base consumer reimbursements in this area on accurate 
schedules that fairly reflect the market and are regularly updated. And 
they should disclose to consumers ahead of time how much they will be 
National Action
    The Attorney General believes that the states can serve as 
laboratories for advances and reforms in areas such as health care. New 
York should adopt a regulation that serves as a model for the Nation in 
advancing the goals of accuracy, transparency and fairness in out-of-
network reimbursement for consumers.
    The issue of out-of-network reimbursement is just one example of 
how our complex health care system burdens consumers without 
necessarily delivering better outcomes. By the time individuals reach 
out to our Office for help, they have often spent countless hours 
trying to decipher coverage language, filling out claims forms, filing 
appeals with their insurers, negotiating with their providers and 
trying to make sense of mountains of paperwork--all in an effort to 
manage their health care costs, and frequently at a time of coping with 
serious illnesses. Building clarity and accuracy into the reimbursement 
system can also alleviate these unnecessary burdens on patients and 
    As this Congress tackles the reform of our health care system, the 
Attorney General asks that it consider ways to make health care 
transactions more transparent, provide clearer information to consumers 
about their rights and responsibilities, and hold insurers accountable 
for providing accurate and complete information to their members.
    The Attorney General looks forward to providing any assistance the 
Committee may require to help achieve these goals.

    The Chairman. Thank you, Ms. Lacewell.
    Dr. Nielsen?

                      MEDICAL ASSOCIATION

    Dr. Nielsen. Good morning, Chairman Rockefeller, Members of 
the Committee. I'm Dr. Nancy Nielsen. I'm originally from West 
Virginia, as you heard, and I now live in Buffalo, and I am a 
practicing internist and also President of the American Medical 
Association. Thank you very much for inviting me here today to 
testify about this important issue. We have been involved in 
this issue for nearly a decade.
    You have already heard how it worked, that the database was 
used to determine ``usual, customary, and reasonable fees'' 
that insurers paid when a patient went out of network. And the 
patients, as you've also heard, paid extra for the privilege of 
going out of network.
    There have been, as you heard from Ms. Lacewell, two 
precedent-setting settlements by United, one with the AMA and 
the other with Attorney General Cuomo. And therefore, this 
abuse is being addressed. My comments will focus on the AMA's 
lawsuit and its implications for physicians and patients.
    You might wonder why a doctor would not belong to a network 
and why people would have to go out of network. Patients 
understand that all physicians are not part of every network, 
either because the payer sometimes restricts the network 
deliberately, or because the physician decides that the fee 
schedule is not adequate, or that the hoops that they have to 
jump through are not worth it to get the care that their 
patients need, or the administrative burdens are too high, or 
there's simply no benefit to taking a discounted rate when 
there's no volume that is going to follow. So, there are lots 
of reasons why physicians sometimes do not join networks.
    And you've also heard, from Ms. Lacewell, how it works. 
There is usually a percentage that the insurer agrees to pay 
for the out-of-network charge. And the patients believe, the 
consumer believes, that the insurer will pay that percentage of 
what the doctor charges. What actually happens, as you've 
heard, is that it's the insurers themselves, through the 
Ingenix database, that are actually lowering the amount and 
deciding what is, quote, ``allowed.''
    That is a rude awakening for patients like Dr. Mary Jerome.
    It's also very harmful to patients--to physicians. And the 
harm is not just financial. This drives a stake in the heart of 
the doctor-patient relationship, because if you're a patient 
and you're told that X is the ``usual, customary, and 
reasonable,'' and your doctor charged Y, what is your 
assumption? That it is an ``unreasonable'' charge. And that is 
unfair, and that has damaged the doctor-patient relationship 
throughout this country, not just in New York.
    In the year 2000, the AMA and the Medical Societies of the 
State of Missouri and New York filed suit against United on 
this issue, exactly. It lay aborning in the courts for many 
years, despite the best efforts, until the Attorney General 
took it on. And we are very pleased that the consumers and the 
doctors worked together with the Attorney General's office. 
They did the groundbreaking work, got the information that no 
one else was able to get.
    How did the database lower those fees? Let me just give 
you, quickly, four ways. First, they deleted higher charges and 
any charges with cases that had complications. They included 
outdated information, discounted rates, and even charges from 
nonphysicians. They failed to collect relevant information 
about the site of service, the length of training, the 
physician qualifications. And when there was no data available 
in an area, they derived some. Those were the ways that the 
flaws occurred.
    The conflicts of interest, you have heard described quite 
readily, both by the Chairman and by Ms. Lacewell.
    Ultimately, to be fair, United recognized the importance of 
restoring its relationship with patients and physicians, and is 
settling its court battle with the AMA. It agreed to pay $350 
million, the largest settlement against any insurer in this 
country, to compensate under-reimbursed patients and 
physicians, and to transfer this UCR database from Ingenix to 
the new not-for-profit entity These settlements will help make 
sure that patients understand what they're being promised when 
they purchase an out-of-network service, what their obligation 
will be, and what the obligation of their insurer will be.
    We urge Congress to ensure that everyone, including Federal 
workers, who may have also been shortchanged through these out-
of-network benefits, to receive reasonable compensation. We 
also urge you to pursue payment transparency, because the 
transparency of the health industry, for payments and for other 
things, is in everyone's best interest--patients, doctors, and 
the country as a whole.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Dr. Nielsen follows:]

    Prepared Statement of Nancy H. Nielsen, M.D., Ph.D., President, 
                      American Medical Association
    The American Medical Association (AMA) appreciates the opportunity 
to present testimony to the Committee on Commerce, Science, and 
Transportation regarding usual and customary reimbursement for out-of-
network providers. We commend Chairman Rockefeller, Ranking Member 
Hutchison, and Members of the Committee for your leadership in 
recognizing the far-reaching implications of the recent settlements 
involving the Ingenix usual, customary, and reasonable (UCR) databases 
owned by United Health Group (United).
    These databases were used for over a decade as the basis for 
determining the UCR fees that United and many other third-party payers 
paid for medical services provided out of network, that is, by 
physicians who had not contracted with the patient's health insurer to 
accept a discounted rate. These databases employed flawed data to 
determine out-of-network payment rates, resulting in increased health 
insurer profits at the expense of patients and physicians. As a result 
of two precedent-setting settlements entered into by United, one with 
the AMA and the other with Attorney General Cuomo, this practice is 
finally being eradicated.
    The elimination of these UCR databases represents a major step 
toward improving the health insurance system in the United States. Most 
of the medical care provided pursuant to health insurance today is 
provided by physicians and other clinicians who have agreed to provide 
care to the patients covered by that health insurance product for a 
discount. Physicians generally try to contract with health insurers 
because they may receive significant benefits in return--(1) a promise 
of prompt payment, (2) increased patient volume by virtue of inclusion 
in provider directories and benefit plans that give patients a 
substantial financial incentive to go to in-network providers, and (3) 
maintenance of patient loyalty by meeting their patients' requests that 
they be ``in-network.'' These benefits can justify a significant 
discount from a physician's retail charges.
    However, at least 70 percent of people in the United States who 
have health insurance, have a product that covers out-of-network care 
for an additional premium.\1\ Patients understand that not all 
physicians are contracted, either because the payer has restricted the 
network, or because the physician did not agree to the contract terms--
the fee schedule offered was too low, the administrative or other 
burdens imposed were too high, or the health insurer was promising 
little or nothing with respect to benefits. Out-of-network coverage 
varies, but typical health insurance policies call for the insurer to 
pay a percentage of the UCR charge of the out-of-network provider, for 
example 50 percent. While health insurers have in recent years used 
various iterations of this language, the traditional definition of UCR 
charge is as follows:
    \1\ 2008 Kaiser/HRET Employer Health Benefits Survey.

   Usual: A charge is considered ``usual'' if it is a 
        physician's usual charge for a procedure.

   Customary: A charge is considered ``customary'' if it is 
        within a range of fees that most physicians in the area charge 
        for a given procedure (often measured at a specific percentile 
        of all charges submitted for a given procedure in that 

   Reasonable: A charge is considered ``reasonable'' if it is 
        usual and customary, or if it is justified because of special 

    Most patients expect their physicians to bill at a rate which is 
typical for their specialty and community for the services provided. 
Thus, assuming they have health insurance which includes an out-of-
network benefit of 50 percent of UCR, patients expect that if they 
receive a bill of $100 for a service provided by a non-contracted 
physician, the health insurer will pay $50 of the bill, and they will 
be responsible for the remainder--in this case $50. But if the insurer 
systematically ``allows'' less than the UCR charge, the patient is left 
with a larger bill. For example, if the payer ``allows'' only $80 for 
the $100 service, the health insurer pays $40 (50 percent of $80) and 
the patient is now left with a $60 obligation ($100-$40=$60).
    Obviously, the size of the underpayment will vary based on the size 
of the claim and the way in which the insurer calculated the UCR 
payment, which may magnify the underpayment dramatically. For example, 
an insurer that bases its payment on the 50th percentile of the Ingenix 
database, will pay substantially less than an insurer that bases its 
payment on the 80th or 90th percentile. As demonstrated in several of 
Attorney General Cuomo's settlements, insurers that use older versions 
of the Ingenix database will pay less than those who are using the 
current database. These problems may be further compounded depending on 
how the benefit package is structured, particularly the deductible and 
coinsurance responsibilities. To the extent these are structured in a 
way that the patient is only ``credited'' with expenditures based on 
the understated ``allowable'' amount, rather than on the amount the 
patient has truly been responsible to pay out-of-pocket, the patient is 
harmed twice.
    Financial harm to the patient is not the only damage caused by this 
scheme. First, the patient-physician relationship may be unfairly 
undermined, and physicians may be unfairly defamed if patients wrongly 
believe they have been over-charged. As Attorney General Cuomo found in 
his report, ``The Consumer Reimbursement System is Code Blue,'' states:

        The responsible consumer reads the plan documents and sees a 
        thicket of words. One term seems intelligible: the ``usual and 
        customary rate'' of a similar physician for a similar service 
        in a similar area. That sounds reasonable. The consumer makes 
        the leap out of network and submits the bill to the insurer, 
        only to be told the consumer will not be fully reimbursed 
        because the doctor's charge exceeded the usual and customary 
        rate. The fog of ignorance continues, thanks to the insurer. 
        The physician-patient relationship is undermined, as the 
        physician has been branded a charlatan whose bills are 

    Health Care Report, ``The Consumer Reimbursement System is Code 
Blue,'' State of New York, Office of the Attorney General, January 13, 
2009, which can be 
found at, http://www.oag.state.ny.us/bureaus/health_care/HIT2/
    Through the Litigation Center of the AMA and the State Medical 
Societies, the abusive practice is being eliminated. In 2000, the AMA 
was joined by the Medical Society of the State of New York, the 
Missouri State Medical Association and several other parties in 
initiating a class-action lawsuit against United Health Group for using 
skewed data to determine out-of-network payment rates. The AMA's 
lawsuit alleged that the Ingenix data was artificially reduced in the 
following ways:

   Inadequate data--The Ingenix database lacks information 
        which is relevant to a physician's retail charges, such as the 
        physician's training and qualifications, the type of facility 
        where the service was provided, and the patient's condition.

   Corrupted data--Ingenix manipulates the database in numerous 
        ways to reduce the charges, including but not necessarily 
        limited to all of the following:

     By deleting valid high charges and by deleting 
            proportionately more high charges than low charges.

     By deleting charges that have modifiers to indicate 
            procedures or services with complications.

     By failing to collect information affecting the value 
            of the service, such as whether the service was performed 
            by someone other than a physician.

     By pooling data from dissimilar providers (such as 
            nurses, physician assistants, and physicians) for use in 
            the database.

     By maintaining outdated information.

     By commingling negotiated or discounted rates with 
            retail charges.

     By accepting data from contributors who had already 
            deleted higher charges from the data they submitted.

     By using defective data in the database and a 
            deficient methodology to derive charges which are 
            artificially low. For example, if Ingenix does not have a 
            UCR rate for a particular geographic area, it will attempt 
            to infer or derive the rate from other geographic areas. 
            These derived charges, however, are faulty.

   Conflict of interest--Last, but certainly not least, the 
        entire enterprise was permeated with conflicts of interest. All 
        of the insurers that contributed data to the Ingenix UCR 
        databases had a financial motive to manipulate it in ways that 
        reduced the UCR charges.

    A detailed description of one court's findings concerning the 
Ingenix databases and their shortcomings is available in Judge 
Hochberg's thoughtful decision approving a recent class action 
settlement on behalf of HealthNet patients of approximately $250 
million in McCoy v. HealthNet. See generally, 569 F. Supp. 2d 448 
(D.N.J. 2008).
    After nearly a decade of litigation, the AMA is very pleased that 
United Health Group recognized the importance of restoring its 
relationship with patients and physicians and is settling the AMA's 
lawsuit by agreeing to pay $350 million toward reimbursing the patients 
and physicians it short-changed, and by confirming in Federal court its 
separate agreement with New York Attorney General Cuomo to end the use 
of this database and trust its repair and operation to a not-for-profit 
    Indeed, evidence gathered during the course of this litigation was 
brought to the attention of New York Attorney General Cuomo. The AMA 
urged Attorney General Cuomo to investigate the abuses, and we are 
gratified that his office devoted such substantial resources to that 
effort. Attorney General Cuomo's report documenting that investigation, 
``Health Care Report--The Consumer Reimbursement System is Code Blue,'' 
does an excellent job of describing how the lack of transparency which 
characterizes the current health insurance payment system for out of 
network services works to disadvantage patients and their physicians, 
while benefiting the health insurance companies. The further 
specificity contained in Attorney General Cuomo's Agreements of 
Discontinuance with individual health insurers, which document knowing 
practices by certain insurers to exacerbate the problems with the 
Ingenix databases by using out-dated versions of those databases is 
especially troubling, as is the finding in his report that one national 
payer has been paying the same rates for in-network and out-of-network 
care, despite charging higher premiums for the out-of-network benefit.
    The AMA commends Attorney General Cuomo for successfully 
negotiating the transition of the UCR database from Ingenix to an 
independent, not-for-profit, and for his further success in gaining the 
commitment of virtually all of the health insurers that do business in 
New York to support that transition financially and with data going 
forward for the next 5 years.
    Eliminating the long-standing underpayment of patients based on the 
faulty Ingenix database, these settlements will ensure that patients 
receive the benefit of the higher premiums they have paid to have out-
of-network coverage. There will finally be an accurate, legitimate data 
warehouse compiling all physician billed charges for out-of-network 
services. The information from the newly created database will be 
available not only to payers but also to the public, including patients 
who are shopping for health insurance and those who are seeking medical 
services. This welcome transparency should go a long way toward 
resolving the issues with out-of-network coverage uncovered by the AMA 
lawsuit and confirmed by Attorney General Cuomo's investigative report 
and settlements.
    We urge the Congress to ensure that everyone who was injured by 
this scheme, including Federal workers who may have been shortchanged 
on out-of-network benefits, are provided with reasonable compensation. 
We also urge the Congress to pursue health insurance payment 
transparency. The entire health insurance payment system is marked by 
complexity and confusion. This is graphically illustrated by the AMA's 
National Health Insurer Report Card, which provides objective measures 
of the claims processing activities of the major health insurers. See 
attached. The AMA believes enormous savings would accrue to patients, 
physicians, health insurers, and other third-party payers if there were 
complete transparency. Enhancement of the Health Insurance Portability 
and Accountability Act (HIPAA) standard transactions by the adoption of 
additional standards governing payment policies and additional 
enforcement of the existing standards, would also lead to dramatic 
efficiencies throughout the system.
    The AMA appreciates the opportunity to provide our views to the 
Committee on these critical matters affecting the nations patients and 
physicians and we look forward to working with the Committee and 
Congress to ensure accurate and transparent health insurance payments.
                2008 National Health Insurer Report Card
    The purpose of the AMA's National Health Insurer Report Card 
(NHIRC) is to provide physicians and the general public a reliable and 
defensible source of critical metrics concerning the timeliness, 
transparency and accuracy of claims processing by the health insurance 
companies that are responsible for paying these claims. Billions of 
dollars in administrative waste would be eliminated each year if third-
party payers sent a timely, accurate and specific response to each 
physician claim.
    The NHIRC is for informational purposes only. Physicians and payers 
are encouraged to review the NHIRC results and begin healing the health 
care claims process by supporting the AMA's ``Heal the Claims Process'' 
campaign and committing to the goal of reducing the cost of claims 
administration to 1 percent of collections. Visit the AMA Practice 
Management Center Website at www.ama-assn.org/go/pmc for information on 
the ``Heal the Claims Process'' campaign.

    \1\ At least some payer proprietary edits are available.
    \2\ At least some medical payment policies are available.
    \3\ May not be applicable given that no payer-proprietary claim 
edits were identified by this analysis.

       2008 National Health Insurer Report Card--Complete Metrics
Payment Timeliness
Metric 1--Payer claim received date disclosed
    Description: What percentage of time does the payer provide the 
date it received the claim (payer claim received date) in its 
electronic remittance advice (ERA) or explanation of benefits (EOB) 
response to the physician?
Metric 2--First remittance response time (median days)
    Description: What is the median time period in days between the 
date the physician claim was received by the payer and the date the 
payer produced the first ERA or EOB? If a payer did not provide the 
payer claim received date, the most current date of service that was 
reported on the claim was used to perform the calculation, as noted in 
the disclaimer.
Metric 3--ERA activity during the data period (We have chosen not to 
        report at this time)
    Description: How many ERAs (one, two, three or more) does the 
physician receive for the same claim within the data period?
Metric 4--Allowed amount disclosed
    Description: On what percentage of records (lines on claims) does 
the payer provide the physician contracted rate (allowed amount) in its 
ERA response to the physician?
Metric 5--Contracted payment rate adherence
    Description: On what percentage of records does the payer's allowed 
amount equal the contracted payment rate?
Transparency of Contracted Fees and Payment Policies on Payer Web Sites
Metric 6--Contracted fee schedule
    Description: Is the physician's contracted fee schedule (payer 
allowed amount) available on the payer's Website?
Metric 7--Contract fee schedule codes allowed per request
    Description: If the contracted fee schedule is available on the 
payer's Website, how many procedure codes are available per request?
Metric 8--Availability of payer proprietary code edits
    Description: If the payer uses proprietary code edits, are they 
available on the payer's Website? Proprietary code edits are edits 
other than those found in one or more of the following: AMA Current 
Procedural Terminology \1\ (CPT), National Correct Coding Initiative 
(NCCI), Centers for Medicare and Medicaid Services (CMS) Publication 
100-04 and the American Society of Anesthesia (ASA) Relative Value 
    \1\ CPT is a registered trademark of the American Medical 
Metric 9--Medical payment policies
    Description: Are the payer's medical payment policies available on 
its Website?
Compliance with Generally Accepted Pricing Rules
Metric 10--Percentage of claim lines (i.e., records) reduced by edits
    Description: On what percentage of records does the payer apply a 
claim edit that reduces the payment (allowed amount) of the line to $0?
Metric 11--Source of claim edits
    Description: On what percentage of records is the source of the 
claim edit applied by the payer based on one or more of the following: 
CPT, NCCI, CMS Publication 100-04, ASA Relative Value Guide or payer 
proprietary edits?
Metric 12--Percentages of claim lines (i.e., records) denied
    Description: What percentage of records submitted are denied by the 
payer for reasons other than a claim edit? A denial is defined as: 
allowed amount equal to the billed charge and the payment equals $0.
Metric 13--Reason codes (Claim Adjusted Reason Codes [CARC*]) given for 
    Description: What are the most frequently reported reason codes for 
a denial?

                                                 Effective     Modified
 Reason Code             Description                Date         Date
B9             Services not covered because        1/1/1995
                the patient is enrolled in a
B11            The claim/service has been          1/1/1995
                transferred to the proper
                payer/processor for
                processing. Claim/service not
                covered by this payer/
1              Deductible Amount.                  1/1/1995
16             Claim/service lacks information     1/1/1995    6/30/2006
                which is needed for
                adjudication. At least one
                Remark Code must be provided
                (may be comprised of either
                the Remittance Advice Remark
                Code or NCPDP Reject Reason
17             Payment adjusted because            1/1/1995    9/30/2007
                requested information was not
                provided or was insufficient/
                incomplete. At least one
                Remark Code must be provided
                (may be comprised of either
                the Remittance Advice Remark
                Code or NCPDP Reject Reason
                Code). This change to be
                effective 4/1/2008: Requested
                information was not provided
                or was insufficient/
                incomplete. At least one
                Remark Code must be provided
                (may be comprised of either
                the Remittance Advice Remark
                Code or NCPDP Reject Reason
18             Duplicate claim/service.            1/1/1995
26             Expenses incurred prior to          1/1/1995
27             Expenses incurred after             1/1/1995
                coverage terminated.
29             The time limit for filing has       1/1/1995
31             Claim denied as patient cannot      1/1/1995
                be identified as our insured.
38             Services not provided or            1/1/1995    6/30/2003
                authorized by designated
                (network/primary care)
49             These are non-covered services      1/1/1995
                because this is a routine exam
                or screening procedure done in
                conjunction with a routine
50             These are non-covered services      1/1/1995
                because this is not deemed a
                `medical necessity' by the
51             These are non-covered services      1/1/1995
                because this is a pre-existing
96             Non-covered charge(s). At least     1/1/1995    6/30/2006
                one Remark Code must be
                provided (may be comprised of
                either the Remittance Advice
                Remark Code or NCPDP Reject
                Reason Code).
97             Payment adjusted because the        1/1/1995   10/31/2006
                benefit for this service is
                included in the payment/
                allowance for another service/
                procedure that has already
                been adjudicated.
109            Claim not covered by this payer/    1/1/1995
                contractor. You must send the
                claim to the correct payer/
160            Payment denied/reduced because     9/30/2003    9/30/2007
                injury/illness was the result
                of an activity that is a
                benefit exclusion. This change
                to be effective 4/1/2008:
                Injury/illness was the result
                of an activity that is a
                benefit exclusion.
197            Payment adjusted for absence of   10/31/2006
204            This service/equipment/drug is     2/28/2007
                not covered under patient's
                current benefit plan.

Metric 14--Remark codes given for denials
    Description: What are the most frequently reported remark codes for 
a denial?

                                                 Effective     Modified
 Remark Codes            Description                Date         Date
M15            Separately billed services/         1/1/1997
                tests have been bundled as
                they are considered components
                of the same procedure.
                Separate payment is not
M16            Alert: Please see our website,      1/1/1997     4/1/2007
                mailings, or bulletins for
                more details concerning this
M20            Missing/incomplete/invalid          1/1/1997    2/28/2003
M25            The information furnished does      1/1/1997    11/5/2007
                not substantiate the need for
                this level of service. If you
                believe the service should
                have been fully covered as
                billed, or if you did not know
                and could not reasonably have
                been expected to know that we
                would not pay for this level
                of service, or if you notified
                the patient in writing in
                advance that we would not pay
                for this level of service and
                he/she agreed in writing to
                pay, ask us to review your
                claim within 120 days of the
                date of this notice. If you do
                not request an appeal, we
                will, upon application from
                the patient, reimburse him/her
                for the amount you have
                collected from him/her in
                excess of any deductible and
                coinsurance amounts. We will
                recover the reimbursement from
                you as an overpayment.
M27            Alert: The patient has been         1/1/1997     8/1/2007
                relieved of liability of
                payment of these items and
                services under the limitation
                of liability provision of the
                law. The provider is
                ultimately liable for the
                patient's waived charges,
                including any charges for
                coinsurance, since the items
                or services were not
                reasonable and necessary or
                constituted custodial care,
                and you knew or could
                reasonably have been expected
                to know, that they were not
                covered. You may appeal this
                determination. You may ask for
                an appeal regarding both the
                coverage determination and the
                issue of whether you exercised
                due care. The appeal request
                must be filed within 120 days
                of the date you receive this
                notice. You must make the
                request through this office.
M50            Missing/incomplete/invalid          1/1/1997    2/28/2003
                revenue code(s).
M51            Missing/incomplete/invalid          1/1/1997    12/2/2004
                procedure code(s).
M64            Missing/incomplete/invalid          1/1/1997    2/28/2003
                other diagnosis.
M81            Missing/incomplete/invalid          1/1/1997    2/28/2003
                provider/supplier signature.
M86            Service denied because payment      1/1/1997    6/30/2003
                already made for same/similar
                procedure within set
M127           Missing patient medical record      1/1/1997    2/28/2003
                for this service.
MA67           Correction to a prior claim.        1/1/1997
MA130          Missing invoice or statement        1/1/1997    2/28/2003
                certifying the actual cost of
                the lens, less discounts, and/
                or the type of intraocular
                lens used.
N4             Missing/incomplete/invalid          1/1/2000    2/28/2003
                prior insurance carrier EOB.
N19            Procedure code incidental to        1/1/2000
                primary procedure.
N29            Missing documentation/orders/       1/1/2000     8/1/2005
N59            Alert: Please refer to your         1/1/2000     4/1/2007
                provider manual for additional
                program and provider
N102           This claim has been denied        10/31/2001
                without reviewing the medical
                record because the requested
                records were not received or
                were not received timely.
N115           This decision was based on a       5/30/2002     4/1/2004
                local medical review policy
                (LMRP) or Local Coverage
                Determination (LCD). An LMRP/
                LCD provides a guide to assist
                in determining whether a
                particular item or service is
                covered. A copy of this policy
                is available at http://
                www.cms.hhs.gov/mcd, or if you
                do not have Web access, you
                may contact the contractor to
                request a copy of the LMRP/
N130           Consult plan benefit documents    10/31/2002     4/1/2007
                for information about
                restrictions for this service.
N155           Alert: Our records do not         10/31/2002     4/1/2007
                indicate that other insurance
                is on file. Please submit
                other insurance information
                for our records.
N174           This is not a covered service/     2/28/2003
                however, patient liability is
                limited to amounts shown in
                the adjustments under group
N179           Additional information has been    2/28/2003
                requested from the member. The
                charges will be reconsidered
                upon receipt of that
N197           The subscriber must update         2/25/2003
                insurance information directly
                with payer.
N225           Incomplete/invalid                  8/1/2004     8/1/2005
N269           Missing/incomplete/invalid         12/2/2004
                other provider name.
N270           Missing/incomplete/invalid         12/2/2004
                other provider primary
N285           Missing/incomplete/invalid         12/2/2004
                referring provider name.
N286           Missing/incomplete/invalid         12/2/2004
                referring provider primary
N290           Missing/incomplete/invalid         12/2/2004
                rendering provider primary
N365           This procedure code is not          4/1/2006
                payable. It is for reporting/
                information purposes only.
N418           Misrouted claim. See the            8/1/2007
                payer's claim submission

    The Chairman. Thank you, Dr. Nielsen.
    Mr. Bell.


    Mr. Bell. Mr. Chairman, Members of the Committee, thanks 
very much for the opportunity to testify on consumer 
reimbursement for health care services.
    Consumers Union is the nonprofit, independent publisher of 
Consumer Reports magazine, with a circulation of 8 million 
readers, both print and online. And we regularly poll our 
readership and the public about key consumer issues, and the 
high cost of health care consistently ranks among their top 
    I work for Consumers Union's advocacy and public policy 
division in the New York office, where I've represented 
Consumers Union's positions on health care issues for the last 
19 years in the Northeastern States on issues relating to 
health insurance, prescription drugs, patient safety, and 
restructuring of nonprofit health plans in hospitals.
    I think, as all of us are painfully aware, health insurance 
costs for employers are going up at a very steep rate. But, in 
addition to that, they're going up a lot for consumers, too, 
and consumers are having to dig a lot deeper to pay for health 
    The average employee contribution for company-provided 
health insurance has increased more than 120 percent since 
2000, and for consumers and employer-provided plans, average 
out-of-pocket costs for deductibles, co-payments for drugs, and 
coinsurance for physician and hospital visits have also risen 
115 percent since 2000. So, this is the context. And in the 
midst of this escalating crisis of out-of-pocket costs, 
consumers have been struggling with a gravely flawed out-of-
network reimbursement system, which has been described here 
    And the scale of the issue is huge. Over 110 million 
Americans, roughly one in three consumers, are covered by 
health insurance plans which provide an out-of-network option, 
and that's--includes about 70 percent of people who have 
employer-sponsored coverage.
    So, as a national organization that represents consumers, 
we emphatically agree with Attorney General Cuomo's conclusion 
that the structure of the out-of-network reimbursement system 
is broken. We believe that it needs to be rebuilt from the 
ground up so that consumers will be assured of being reimbursed 
fairly, and that there will be appropriate public oversight and 
accountability for collection of data regarding physician and 
provider charges.
    This investigation, as you've heard, has exposed a swamp of 
financial shenanigans, and has now reached a critical juncture. 
We believe that we need coordinated action by State and Federal 
policymakers and regulators to help consolidate the 
investigation's gains and ensure that the new database for 
calculating out-of-network charges will be broadly used across 
the entire marketplace.
    Some of the implications of the investigation that we think 
are important are the following:
    First, we think that regulators need to hold insurance 
companies accountable to their contractual promises on an 
ongoing basis. Consumers clearly have the right to expect that 
their health insurance policies will pay the bills that they 
are legally obligated to pay.
    Everyone can easily agree that insurance companies should 
not engage in deceptive and unfair practices against consumers, 
but there's nothing automatic about that process. It takes 
sustained effort and political will to achieve the vigorous 
comprehensive enforcement of State and Federal insurance and 
consumer-protection laws and regulation.
    And in this case, the technical nature of the subject 
matter and the obscure veiled nature of the Ingenix database 
resulted in a persistent ripoff that took far too many years to 
rein in.
    Attorney General Cuomo, to his great credit, plunged in 
and--as soon as he learned about the problem, and drove hard to 
get a consumer-friendly solution, but it--I think this case 
raises some troubling questions about why financial ripoffs 
like this one persist in the marketplace for so many years 
without effective intervention at the State or Federal level. 
Why didn't the alarms go off earlier about these unfair 
    So, we believe that oversight of the insurance industry can 
be tightened up at the State level by more intervention by 
attorneys general and insurance commissioners, and by 
establishing independent offices of insurance consumer 
    Second, we think consumers do need a trusted system that 
they can rely on to ensure that the UCR rates will be 
calculated for out-of-network reimbursements, and that they'll 
be accurate and up to date. We believe the independent 
databases proposed by Attorney General Cuomo will have great 
benefits and give consumers a fix on what their reimbursements 
will be.
    We believe, also, that the insurance regulation that's 
being proposed in the State of New York to apply to all 
insurers in our State, and basically encourage them to use an 
independent source for this data, will be a very popular 
regulation, and it will be quickly adopted. But, it still begs 
the question--consumers need protection across the entire 
country on these issues, and we really hope that the regulation 
will be adopted as a model by the NAIC, or perhaps the Federal 
Government could set some minimum standards in this area.
    We also would note that Attorney General Cuomo's done a 
fabulous job in lining up some of the largest insurers in the 
country to support the settlements, but there are still many 
other insurance companies around the country, particularly 
State and regional companies, that use data from the Ingenix 
databases, who have--do not have operations in New York State, 
and have not been reached by this investigation. So, they have 
not necessarily halted their use of the Ingenix database or 
notified consumers of its shortcomings. And so, we would 
therefore urge the Senate Commerce Committee to investigate the 
nature and extent of the use of the Ingenix databases by other 
health insurance companies throughout the U.S. and to seek 
possible remedies or solutions for halting this practice.
    The New York investigation suggests that tens of millions 
of consumers have been directly hurt by industry practices that 
led to the underpayment of their health insurance bills. And at 
this point, nobody can say for sure exactly how much consumers 
were underpaid as a result of the broken out-of-network 
reimbursement system, but we believe that the financial damage 
sustained by consumers is clearly very substantial. We know it 
runs at least into the hundreds of millions of dollars.
    Finally, for the health care system to function 
effectively, we need strong ongoing financial accountability 
and oversight. We believe that this important reform of the 
out-of-network system prefigures much larger changes that we 
need to make as a country to ensure transparency and 
accountability in the health care system. Consumers need more 
and better information about the costs of medical procedures 
and treatments, and their therapeutic benefits, to ensure that 
we're getting good value for the precious dollars that we 
    Mr. Chairman and Members of the Committee, thank you very 
much for your efforts to assure appropriate Federal oversight 
of consumer reimbursement issues. We look very much--to working 
with you to shape solutions on this area, and to help transform 
the health care system in the United States.
    Thanks very much for considering our views.
    [The prepared statement of Mr. Bell follows:]

 Prepared Statement of Charles Bell, Programs Director, Consumers Union
    Mr. Chairman, Members of the Committee:
    Thank you very much for the invitation to testify on the issue 
consumer reimbursement for health care services. We commend you for 
holding this hearing to focus attention on issues related to consumer 
reimbursement and consumer protection in health insurance.
    Consumers Union \1\ is the independent, non-profit publisher of 
Consumer Reports, with circulation of about 7 million (Consumer Reports 
plus ConsumerReports.org subscribers). We regularly poll our readership 
and the public about key consumer issues, and the high cost of health 
care consistently ranks among their top concerns.
    \1\ Consumers Union, the nonprofit publisher of Consumer Reports, 
is an expert, independent organization whose mission is to work for a 
fair, just, and safe marketplace for all consumers and to empower 
consumers to protect themselves. To achieve this mission, we test, 
inform, and protect. To maintain our independence and impartiality, 
Consumers Union accepts no outside advertising, no free test samples, 
and has no agenda other than the interests of consumers. Consumers 
Union supports itself through the sale of our information products and 
services, individual contributions, and a few noncommercial grants.
    I work in Consumers Union's advocacy and public policy division, 
where I have represented Consumers Union's positions on health care 
issues for the last 19 years in the Northeastern states on issues 
relating to health insurance, prescription drugs, patient safety and 
the restructuring of nonprofit health plans and hospitals. I also serve 
on the steering committee of New Yorkers for Accessible Health 
Coverage, a statewide organization representing consumers with chronic 
illnesses and disabilities.
Consumers Face A Growing Financial Burden for Health Care--Especially 
        for Out-of-Pocket Costs
    The financial burdens on consumers related to health care have been 
steadily increasing over the last 15 to 20 years. As the Committee is 
no doubt painfully aware, the cost of health insurance has increased 
dramatically in recent years. Consumers are both paying more in 
premiums, AND shouldering a higher burden for out-of-pocket expenses, 
including deductibles, co-payments and other expenses not covered by 
their health insurance.
    According to the Kaiser Family Foundation, the cumulative growth in 
health insurance premiums between 1999 and 2008 was 119 percent, 
compared with cumulative inflation of 29 percent and cumulative wage 
growth of 34 percent. The rapid growth in overall premium levels means 
that both employers and workers are paying much higher amounts than 
they did a few years ago.
    Policymakers and the media often focus on the economic challenges 
posed by high cost of rising health insurance premiums for employers--
and that is absolutely appropriate. But a lot of money comes directly 
out of the consumer's pocket as well. The average employee contribution 
to company-provided health insurance has increased more than 120 
percent since 2000.
    Consumers are also paying significantly more for out-of-pocket 
health expenses. For consumers in employer-sponsored plans, average 
out-of-pocket costs for deductibles, co-payments for medications, and 
co-insurance for physician and hospital visits have risen 115 percent 
since 2000. Consumers who buy their own coverage also have high out-of-
pocket expenses.
    As result of these trends, health expenses are taking up a rising 
share of family income. 30 percent of insured consumers spent 10 
percent or more of their incomes annually on out-of-pocket costs and 
premiums in 2007, compared to 19 percent in 2001, according to a recent 
report from the Commonwealth Fund.
    The steady, accelerating shift of costs to individuals and families 
results both in financial stress and increasing financial barriers to 
needed care. In 2007, more than 40 percent of working age adults in the 
U.S. had difficulty paying medical bills or accumulated medical debt 
last year, compared with about 33 percent in 2005, according a study by 
the Commonwealth Fund. The Fund also reports that ``an increasing 
number of adults who are insured have such high out-of-pocket costs 
relative to their income that they are effectively `underinsured.' ''
Consumers Confront Serious Problems in Obtaining Fair Out-Of-Network 
    In the midst of this escalating crisis of out-of-pocket costs, 
consumers have also been forced to contend with a gravely-flawed out-
of-network reimbursement system. According to a recent investigation by 
New York Attorney General Andrew Cuomo, and recent settlements with 
some the Nation's largest insurance carriers, it now appears that 
consumers may have been underpaid for their out-of-network 
reimbursements by hundreds of millions of dollars. The databases used 
to calculate out-of-network reimbursements are riddled with serious 
data quality problems and massive financial conflicts of interest.
    Over the last several years, Consumers Union has become 
increasingly concerned about consumer problems in obtaining fair, 
appropriate and timely reimbursement for out-of-network health 
services. These problems came to our attention as a result of consumer 
complaints, concerns expressed by physicians and employers, reports in 
the news media, and litigation.
    In particular, in New York state, we were aware that the American 
Medical Association, the Medical Society of the State of New York, 
other state medical societies, New York State United Teachers, Civil 
Service Employees Association (CSEA), other public employee unions and 
other consumer plaintiffs had sued UnitedHealth Group in 2000, alleging 
that they were being systematically shortchanged regarding out-of-
network payments. From a consumer point of view, the implications of 
the lawsuit were potentially very significant, because over 1 million 
public employees in New York state are covered by the Empire Plan, 
which is insured by UnitedHealth Group, one of the Nation's largest 
for-profit insurance companies.
    We were therefore very pleased when Attorney General Andrew Cuomo 
initiated a national investigation of problems relating to out-of-
network charges in February, 2008. The methods used by insurance 
companies to calculate ``usual, customary and reasonable'' rates (also 
known as UCR rates) have long been obscure and mysterious to consumers. 
It was not easy for consumers to verify the basis of the alleged UCR 
rates, or to contest perceived underpayments. Companies are supposed to 
disclose the details of how they calculate these charges upon request. 
But in practice many consumers found it difficult to find out how the 
charges are calculated, and what they are based on.
    Over 110 million Americans--roughly one in three consumers--are 
covered by health insurance plans which provide an out-of-network 
option, such as Preferred Provider Organizations (PPOs) and Point of 
Service (POS) plans This includes approximately 70 percent of consumers 
who have employer-sponsored health coverage.
    Consumers and employers often pay higher premiums to participate in 
an out-of-network insurance plan, because it gives patients greater in 
flexibility in seeking care from doctors, specialists and providers who 
are not in a closed health plan network. In most out-of-network plans, 
the insurer agrees to pay a fixed percentage of the ``usual, customary 
and reasonable'' rate for the service (typically 80 percent of the 
rate), which is supposed to be a fair reflection of the market rate for 
that service in a geographic area. Because the health plan does not 
have a contract with the out-of-network doctor or provider, the 
consumer is financially responsible for paying the balance of the 
bill--whatever the insurance company doesn't pay. By law, the provider 
may pursue the consumer for the entire amount of the payment, 
regardless of how little or how much the insurer reimburses the 
    Even if UCR charges were calculated accurately, consumers could 
still experience ``sticker shock'' when they get the medical bills for 
out-of-network care. Why? They may not understand that the insurance 
company didn't agree to pay 80 percent of the doctor's bill--they only 
agreed to pay 80 percent of ``usual and customary'' rate, which is an 
average of charges in a geographic area. For example, suppose a patient 
went to visit the doctor for a physical, and charged $200. 80 percent 
of $200 is $160. But if an impartial and accurate calculation of 
``usual and customary rate'' shows that what other comparable doctors 
charge for physicals is an average of $160, the insurance company would 
only pay $128, or 80 percent of $160. The consumer would be responsible 
for paying the balance of $72.
    The key problem with the out-of-network reimbursement system is 
that the UCR rates were not calculated in a fair and impartial way. For 
the last 10 years or so, the primary databases that are used by 
insurers to determine ``usual, customary and reasonable'' rates have 
been owned by Ingenix, a wholly-owned subsidiary of UnitedHealth Group. 
Ingenix operates a very large repository of commercial medical billing 
data, and prepares billing schedules that are used to calculate the 
market price of provider health services. In 1998, Ingenix purchased 
the Prevailing Healthcare Charges System (PHCS), a database that was 
first developed by the Health Insurance Association of America, an 
insurance industry trade association. beginning in 1974. Also in 1997, 
Ingenix purchased Medical Data Research and a customized Fee Analyzer 
from Medicode, a Utah-based health care company.
    Thanks to Attorney General Cuomo's investigation, however, we now 
know that there were serious problems with the Ingenix database that 
appear to have consistently led to patients paying more, and insurers 
paying less.
    In January, 2009, Attorney General Cuomo announced key findings 
from his office's investigation regarding the out-of-network 
reimbursement system:

   According to an independent analysis of over 1 million 
        billing records in New York state carried out by the Attorney 
        General, the Ingenix databases understate the market rate for 
        physician visits by rates ranging from 10 to 28 percent across 
        New York state. Consumers got much less than the promised UCR 
        rate, so that instead of getting reimbursed for 80 percent of 
        the UCR charge, they effectively got 70 percent, 60 percent or 
        less. Given the very large number of consumers in out-of-
        network plans--110 million--this translates into hundreds of 
        millions of dollars in losses over the last 10 years for 
        consumers around the country.

   Ingenix has a serious financial conflict of interest in 
        owning and operating the Ingenix databases in connection with 
        determining reimbursement rates. Ingenix is not an independent 
        database--it is wholly-owned by UnitedHealth Group, Inc. It 
        receives billing data from many insurers and in turn furnishes 
        data back to them, including to its own parent company, 
        UnitedHealth. UnitedHealth had a financial incentive to 
        understate the UCR rates it provided to its own affiliates, and 
        other health insurers also had an incentive to manipulate the 
        data they submit to Ingenix so as to depress reimbursement 

   In general, there is no easy way for consumers to find out 
        what the UCR rates are before visiting a medical provider. The 
        Attorney General characterized Ingenix as a ``black box'' for 
        consumers, who could not easily find out what level of 
        reimbursement they would receive when selecting a provider. 
        When they received a bill for out-of-network services, 
        consumers weren't sure if the insurance company was underpaying 
        them, or whether the physician was overcharging them.

   As an example of the lack of transparency, when UnitedHealth 
        members complained their medical costs were unfairly high, the 
        United hid its connection to Ingenix by claiming the UCR rate 
        was the product of ``independent research.''

   The Ingenix database had a range of serious data problems, 
        including faulty data collection, outdated information, 
        improper pooling of dissimilar charges, and failure to conduct 
        regular audits of the billing data submitted by insurers.

    As a result of Attorney General Cuomo's investigation, on January 
13, UnitedHealth agreed to close the 2 databases operated by Ingenix, 
and pay $50 million to a qualified nonprofit organization that will 
establish a new, independent database to help determine fair out-of-
network reimbursement rates for consumers throughout the U.S.
    As a central result of his investigation, Attorney General Cuomo 
wisely concluded that:

        ``. . . the structure of the out-of-network reimbursement 
        system is broken. The system that is meant to reimburse 
        consumers fairly as a reflection of the market is instead 
        wholly owned and operated by the [insurance] industry. The 
        determination of out-of-network rates is an industry-wide 
        problem and accordingly needs an industry-wide solution.

        Consumers require an independent database to reflect true 
        market-rate information, rather than a database owned and 
        operated by an insurance company. A viable alternative that 
        provides rates fairly reflecting the market based on reliable 
        data should be set up to solve this problem . . . Consumers 
        should be able to find out the rate of reimbursement before 
        they decide to go out of network, and they should be able to 
        find out the purchase price before they shop for insurance 
        policies or for out-of-network care.''

    While UnitedHealth did not acknowledge any wrongdoing in the 
settlement, its agreement with the New York Attorney General ended the 
role of Ingenix in calculating UCR charges, and created a new national 
framework for a fair solution. In fact, in a press release announcing 
the settlement, Thomas L. Strickland, Executive Vice President and 
Chief Legal Officer of UnitedHealth Group, expressed strong support for 
a nonprofit database to maintain a national repository of medical 
billing information:

        ``We are committed to increasing the amount of useful 
        information available in the health care marketplace so that 
        people can make informed decisions, and this agreement is 
        consistent with that approach and philosophy. We are pleased 
        that a not-for-profit entity will play this important role for 
        the marketplace.''

    Shortly after settling with the Attorney General's office, 
UnitedHealth also settled the lawsuit brought by the AMA and Medical 
Society of the State of New York, other physician groups, unions and 
consumer plaintiffs for $350 million, the largest insurance cash 
settlement in U.S. history. As sought by MMSNY and the other physician 
groups, United also agreed to reform the way that out-of-network 
charges were calculated.
    Since January, nine other insurers with operations in New York 
state, including huge national insurers such as Wellpoint, Aetna and 
Cigna, have also agreed to stop using data furnished by Ingenix, and to 
contribute funds in support of the new nonprofit database. The leaders 
of other insurance companies have also expressed support for a new 
nonprofit database to increase transparency and reduce conflicts of 
interest, and pledged to use the database when it becomes available. 
Two insurance companies agreed to also reprocess claims from consumers 
who believe they were underpaid for their out-of-network charges.
    All told, the Attorney General has now collected over $94 million 
to support the new independent database, which will be based at a 
university in NewYork state.
Implications of the New York State Investigation
    From a consumer point of view, Attorney General Cuomo's 
intervention has been extremely helpful for consumers in New York state 
and across the U.S. This investigation squarely exposed the problems 
resulting in underpayment of consumers and physicians, and created a 
sweeping new framework for a national solution. The plan set out in the 
agreements reached by Attorney General Cuomo will help bring 
comprehensive, sweeping reform to the out-of-network reimbursement 
    The investigation has exposed a swamp of financial shenanigans, and 
now reached a critical juncture. Consumers Union is calling for 
coordinated action by state and Federal policymakers and regulators to 
help to consolidate the investigation's gains, and ensure that the new 
database for calculating out-of-network charges will be broadly used 
across the entire marketplace.
    First, regulators need to hold insurance companies accountable to 
their contractual promises, on an ongoing basis. Consumers clearly have 
the right to expect that their health insurance policies will pay the 
bills that they are legally obligated to pay. We rely on the promises 
our insurance companies make in their contracts, and we expect the 
provisions of those contracts to be enforced by regulators and the 
courts. If your policy says it will pay you 80 percent of the ``usual 
and customary'' charge for a medical service, it should pay that 
    To enforce this principle in New York state, Attorney General Cuomo 
used his authority under New York's General Business Law 349 and 350, 
which prohibits deceptive acts and practices against consumers, to 
bring the insurance industry into compliance in New York state, as well 
as sections of the insurance law and the common law. Other states have 
similar laws, and they should be appropriately used when needed to 
prevent egregious consumer ripoffs.
    Everyone can easily agree that insurance companies should not 
engage in deceptive or unfair practices against consumers. But the 
reality is that it takes sustained effort and political will to achieve 
the vigorous, comprehensive enforcement of state and Federal insurance 
and consumer protection laws and regulations. In this case, the 
technical nature of the subject matter, and the obscure, veiled nature 
of the Ingenix database, resulted in a persisting ripoff that 
unfortunately took far too many years to rein in.
    To his great credit, Attorney General Cuomo stepped in quickly upon 
learning about the problem, and drove hard to achieve a consumer-
friendly solution. At the same time, this case raises some troubling 
questions about why financial ripoffs persist in the marketplace for 
many years without effective intervention at the state or Federal 
level. Why didn't the alarms go off earlier about unfair practices that 
created very large financial losses for consumers?
    In the future, we hope that Attorneys General and Insurance 
Commissioners--as well as Members of Congress--will step up and act 
quickly to prevent financial abuses of health insurance consumers, and 
coordinate their work where lines of jurisdiction are unclear. In New 
York, the state Attorney General's health bureau served as a early 
warning system to monitor consumer problems, and intervene when things 
were going wrong.
    Attorneys General around the country maintain similar units, and 
some even have the power to intervene before government when insurance 
rates are established. A few other states have established an ``Office 
of Public Insurance Counsel'' or independent consumer advocate to 
fulfill a similar function. But in many states, consumers with 
insurance problems have little recourse, and consumer problems in 
getting fair reimbursement are not routinely investigated or 
publicized. Consumers Union and other consumer groups support expansion 
of Attorney General health care oversight, and the establishment of 
independent consumer advocates in every state.
    Second, consumers need a trusted system they can rely on to ensure 
that the UCR rates calculated for out-of-network reimbursements are 
accurate and up-to-date. By establishing a new nonprofit organization 
to maintain the database on ``usual and customary charges,'' the New 
York Attorney General's agreements help assure those charges will be 
calculated and maintained in a fair, up-to-date and transparent way, 
free from financial conflicts of interest. Consumers will be able to 
obtain up-to-date information on usual and customary charges through a 
national, free website, and have a good fix on what their potential 
reimbursements will be when they visit physicians and other health care 
    In New York, the Attorney General is developing a state insurance 
regulation which will require health insurers who utilize UCR databases 
to ensure that they are fair, accurate, free from conflicts of interest 
and transparent to consumers. We expect that such a regulation will be 
very popular and will quickly be adopted in New York state.
    However, because this is a national problem, there is still a huge 
need for a national or 50-state solution, to ensure that the out-of-
network reimbursement system is fixed for ALL U.S. consumers. A 
regulation based on the New York model could potentially be adopted as 
a model by the National Association of Insurance Commissioners, or 
otherwise codified into law at the state and Federal level. It could 
also be enacted as part of overall Federal health reform legislation.
    Third, by arranging for some of the largest health insurers in the 
country to support the new database, Attorney General Cuomo has paved 
the way for a comprehensive national resolution of these issues. We 
would note, however, that there are many other health insurance 
companies who used data from the Ingenix databases, including state-
based and regional health plans in the South, Midwest and Western 
states, who do not have operations in New York state. These companies 
were not reached by the investigation or the agreements, so they have 
not necessarily halted their use of the Ingenix database, or notified 
consumers of its shortcomings. We therefore would encourage the Senate 
Commerce Committee to investigate the nature and extent of the use of 
the Ingenix databases by other health insurance companies throughout 
the U.S., and possible remedies or solutions for halting this practice 
and securing restitution for consumers.
    Fourth, as mentioned above, the New York investigation suggests 
that tens of millions of consumers have been directly hurt by industry 
practices that led to underpayment of their health insurance bills. At 
this point, no one can say for sure how much consumers were underpaid 
as a result of the broken out-of-network reimbursement system. But the 
financial damage sustained by consumers is clearly substantial.
    There are few things that are more frustrating in life than getting 
shortchanged on your medical expenses by your health insurance company. 
We expect consumers across the country will be very concerned about the 
issues in this case, and where they have been shortchanged, would want 
to be fairly compensated by their insurer.
    Fifth, consumers know that for the health care system to function 
effectively, we need strong, ongoing financial accountability and 
oversight. We believe that the proposed reform of the out-of-network 
reimbursement prefigures much larger changes we need to ensure 
transparency and accountability in the health care system. Consumers 
need more and better information about the cost of medical procedures 
and treatments, and their therapeutic benefits, to ensure we're getting 
good value for the precious dollars we spend. As mentioned above, 
health care costs are skyrocketing. Consumers want very much to get 
better value for our dollars, to ensure that when we visit a physician 
or provider, that we will get safe, appropriate, quality health care, 
that is based on the best medical evidence that is available.
    In the case of the proposed new nonprofit database for out-of-
network charges, Consumers Union is pleased to see that it will be 
specifically developed to be an independent database that is protected 
from financial conflicts of interest. The architecture of the health 
care system must specifically incorporate safeguards that protect 
against inappropriate bias or financial influence from insurance 
companies or others operating in the commercial marketplace. We also 
believe that this new non-commercial database can help to create much 
greater transparency regarding physician and provider fees, and be an 
important resource for medical researchers and others who are working 
to improve the quality, safety and affordability of care for consumers.
    Mr. Chairman, Members of the Committee, the problem of ensuring 
effective state and Federal oversight of consumer reimbursement for 
health care services calls out for your prompt attention. We look 
forward to working with you to shape solutions that will assure that 
the United States rises to the challenge of transforming our health 
care system so that we are no longer at risk of facing financial 
hardship or financial barriers to care just when we need care the most. 
Thank you very much for considering our views.

    The Chairman. Thank you very much, Mr. Bell.
    I should have said at the beginning that all statements are 
automatically included in the record, so--you just sort of gave 
yours, but if you have something written, it goes in, Dr. 
Nielsen. So, that----
    Dr. Nielsen. Yes.
    The Chairman. That's our practice.
    Dr. Nielsen. Yes.
    The Chairman. Ms. Lacewell, I'd like to start with you. In 
January, your office issued a report that discussed some of the 
findings from your investigation. In your report, on page 20, 
there is a table, which I believe people have, now, before 
them, do they not? And I would like to ask you about it.
    [The information referred to follows:]

                       Payments for Doctor Visits
                         Erie County, NY (2007)
                Ingenix ``usual
   Doctor       and customary''    NYAG Estimate of
Office Visit     Reimbursement      Prevailing Cost     Difference (%)
    Codes            Rate
99211                   $36-$37                 $45              18-20%
99212                   $53-$61                 $68              10-22%
99213                   $70-$78                 $84               7-17%
99214                 $105-$122                $130               6-19%
99215                 $145-$182                $200               9-28%
99245                 $276-$340                $373               9-26%
Source: State of New York, Office of the Attorney General, Health Care
  Report: The Consumer Reimbursement System is Code Blue (Jan. 13 2009),

    It's a table that lays out the Ingenix reimbursement rates 
for out-of-network doctor visits in Erie County. In Erie 
County, where you live, right?
    Ms. Lacewell. That's correct.
    The Chairman. And I'd like to give you a copy--or, you now 
have one. The first column contains the various billing codes 
that doctors cover--that cover doctor visits. And they're 
simply--don't get too hung up on them, they just say what was 
the--what was being treated, what was the subject at hand. And 
the second column presents the range of ``usual and customary'' 
reimbursements, as calculated by Ingenix.
    Now, here's where it gets interesting. It's my 
understanding, Ms. Lacewell, that you and your staff went back 
and gathered the insurance claims data for Erie County--just 
Erie County--and performed your own calculation of the 
prevailing wages for doctor visits in the area. Is that 
    Ms. Lacewell. Yes, that's correct, Mr. Chairman.
    The Chairman. The third and fourth columns of the chart 
show that the numbers you came up with indicate that the 
insurance industry's reimbursement rates, as now calculated by 
Ingenix, were anywhere from 10 to 25 percent lower than what 
the doctors were actually charging their patients in this area. 
Is that correct?
    Ms. Lacewell. Yes, sir, that's correct.
    The Chairman. So, let's take an example from this table. If 
a doctor in Buffalo is charging $84 for an office visit, but 
the insurance company is only paying $74 for that visit, 
consumers get stuck paying the $10 balance themselves, correct?
    Ms. Lacewell. That's right.
    The Chairman. Ten dollars doesn't sound like a lot of 
money, but if you have a lot of--you know, you just have a lot 
of doctor's visits, and you multiply this throughout the 
population, it escalates rapidly into millions or hundreds of 
millions of dollars. And they're--the customers are paying it 
out of their own pockets, and they shouldn't be.
    So, Ms. Lacewell, correct me if I'm wrong here, but doesn't 
this table show that families in Erie County are being stuck 
with the millions of dollars of health care costs that should 
be paid for by the insurance companies?
    Ms. Lacewell. Yes, Mr. Chairman, that's exactly what it 
    The Chairman. How did the health insurance companies react 
when you showed them this data? Your data.
    Ms. Lacewell. They settled.
    The Chairman. But, what did they do before they settled. I 
mean, people don't just sort of settle on the spot.
    Ms. Lacewell. That's right, Mr. Chairman. The reason that 
we conducted this analysis is because many of the insurers said 
to us, ``Well, you say it's a conflict of interest. It's 
hypothetical. Show me the database is wrong. Show me I owe 
money.'' So, we collected billing information and put this 
together and demonstrated to them that there was a difference 
in what they were paying, based on Ingenix. And for insurers 
that didn't have a clear window, themselves, into the Ingenix 
data, it was actually useful for them, because some seemed more 
inclined to settle if they could be shown this kind of 
information. For others, who were more obstinate, it sort of 
left them less of a choice, in our view. But, they did not have 
any explanation. They said, ``Well, if there are errors in the 
database that are leading to under-reimbursement, they're just 
errors, there's no intent.'' And our response was that the 
error was always in favor of the insurer and against the 
    The Chairman. Wouldn't, sometimes, they just cut 50 percent 
right off the top?
    Ms. Lacewell. They would cut a percentage off the top, 
which is important, because if you're talking about a 
prevailing rate, it's what most doctors charge. So, if you 
throw out charges at the high end, that's going to depress the 
reimbursement rate.
    The Chairman. Now, let me turn to you, Dr. Nielsen. You're 
from Buffalo. You've practiced medicine there for many years. 
Are you surprised to learn that the insurance companies' 
industry reimbursement rates for your visits in your community 
are 10 to 25 percent lower than the actual market rate?
    Dr. Nielsen. We were surprised to know exactly how low, 
because--you might wonder why we didn't do what the Attorney 
General's office did, and collect that data. And it's very 
clear. It's because of concerns about antitrust enforcement. 
Doctors are not allowed to talk to other doctors about fees. It 
does sound crazy. So, we knew that the underpayment was 
occurring. That's why we filed this lawsuit, back in 2000. We 
didn't know the magnitude of it. We knew it from the doctors 
who came forward. But, the pervasive nature of it is amazing.
    And if you look--if you look at the numbers, those numbers 
correlate very well with another suit that was settled in the 
State of New Jersey with Health Net. And there, it appears 
that, on exactly the same issue, the Ingenix database 
underpayment and the rigging, and the numbers of--the amount of 
underpayment was, in the settlement, estimated to be between 14 
and 28 percent. And that winds up very well with this third 
column that you're seeing.
    The Chairman. My final point, before going to Senator 
McCaskill, is that--you know, make what comparisons you want, 
but Erie County, New York, any county--West Virginia--you find 
a lot of parallels, a lot of people trying to make it, not 
being able to make it, insufficient health insurance, every $10 
counts, every $25 counts. You add them up, it makes an enormous 
amount of difference. The thing that's hardest to understand 
about this practice is that the insurance companies, had they 
behaved as they should have, would have still been making an 
enormous amount of money. Is that correct?
    Ms. Lacewell. That's correct.
    The Chairman. I think it's inexcusable. I'm glad this 
practice has been exposed and that we're beginning to correct 
    I have one final question for you. You settled, and it 
became very reasonable, because, you said, like dominos, 
everybody else began to do that. Now, you're going to have to 
prove that to me, because--I don't know why you didn't go after 
them for fraud. Or maybe you did, and that's why they settled.
    Ms. Lacewell. Well, we alleged to them--and we had to 
threaten to sue some of them under our consumer fraud and 
deceptive practices statutes. And we gave them the option of 
litigating and defending against a fraud lawsuit or signing 
onto the reform practice and stepping away from this deceptive 
system and moving toward a new system of reform. And the 
insurers that operate in the State of New York chose to join 
onto reform.
    The Chairman. But, what's important to me is, you were 
prepared to go the fraud route, and they knew it.
    Ms. Lacewell. That's right.
    The Chairman. I thank you.
    Senator McCaskill?

                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. First, let me say, for the record, that 
I'm a big fan of Andrew Cuomo. And I don't mean, by the 
comments I'm about to make, that I want to diminish his 
accomplishments as a crusader on behalf of consumers. But, I 
think it's important to point out for the record that this 
journey began with a lawsuit that was filed. And I find it a 
little ironic that the Missouri Medical Association and the AMA 
turned to America's trial lawyers to right a wrong as it 
related to the way they were being reimbursed. Because 
generally when I'm speaking to the members of the Missouri 
Medical Association, they're explaining to me that Missouri's 
trial lawyers are nothing short of Satan and that they are the 
evil that has cast such problems upon the practice of medicine 
that it makes it impossible for doctors to do their work.
    So, I wanted the record to show that the AMA turned, in 
fact, to a class-action lawsuit handled by trial lawyers. And 
the reason that it had not been settled by the time that Andrew 
Cuomo took office, some 7 years after the lawsuit had been 
filed, was because the defendants in that lawsuit refused to 
acknowledge the proof that those trial lawyers were willing to 
show the court, and they were delaying and delaying and bumping 
up the costs of that lawsuit for UnitedHealthcare and for the 
defendants in that lawsuit. And had UnitedHealthcare taken 
cognizance of the facts that those trial lawyers had brought to 
the court, and immediately capitulated and admitted that they 
had this collusive system of data that was flawed, we wouldn't 
have had to rely on Andrew Cuomo to come to the rescue.
    Dr. Nielsen?
    Dr. Nielsen. You bet. We don't hate all lawyers. We just 
haven't had remarkable luck with the trial bar, as you know. 
The issue here was the facts, unearthing the facts, and having 
enough persuasive muscle to make sure that the flawed database 
was exposed. And it took the muscle of the people's lawyer. And 
so, it did take a lawyer. It took the people's lawyer. We are 
grateful for that. We are also grateful for the help that we 
had from the attorneys. And sometimes things lie aborning in 
the courts because of other reasons, other than the skill of 
the attorneys.
    Senator McCaskill. I think that's--you know, I appreciate 
that. And I don't mean to--you know, to pick on you. I--but, I 
do think it's important to note that, even the American Medical 
Association, when they need a justice to be addressed, turn to 
America's trial lawyers to try to get into court and fix a 
problem. And that's why America's trial lawyers are so 
important to our system of justice in this country. And I just 
wanted to point that out.
    Now, let me ask you, Dr. Nielsen, do the doctors generally 
agree to take the reduced rate for the out-of-network payment 
from the consumer? And is this difference in payment one that 
the consumer is generally going on the line for, or is there a 
general--I know there have been times in my life that I believe 
that my doctors have taken a reduced rate for an out-of-service 
medical charge.
    Dr. Nielsen. Some do.
    Senator McCaskill. Out-of-network, I mean.
    Dr. Nielsen. Some do. They don't have to, of course. What 
should be--what should happen is, the patient going out of 
network should have access to the information as to what they 
will pay. Just as you heard from the consumer, the patient who 
was unable to be here today; she thought she knew what she was 
going to owe. She knew what the charge was.
    Senator McCaskill. Right.
    Dr. Nielsen. The problem wasn't the charge. The problem was 
the amount of reimbursement from the insurer, which left her 
holding the rest.
    Some doctors do negotiate lower fees when the patient is 
left holding the bag. Some do not. Some give uncompensated 
care, as you know----
    Senator McCaskill. Right.
    Dr. Nielsen.--70 percent of doctors give uncompensated care 
to patients who have no insurance.
    But, this is different. This is a situation of a promise 
made and a contract between a health insurance plan and a 
consumer. And the promise wasn't kept.
    Senator McCaskill. Do--how does the UCR rate compare to the 
Medicare rate, generally speaking? Can you speak to that? Can 
any of the witnesses speak to that? How far off is the Medicare 
rate for reimbursement to doctors from the UCR rate that this 
data--the phony data was supporting?
    Ms. Lacewell. Senator, we did look at that issue, and we 
found that typically the Medicare rate is much lower, and, of 
course, we believe this is one of the reasons why insurers 
charge a higher premium for the structure of this out-of-
network system, because the insurer's saying, ``It's going to 
cost me more. I'm going to pass on a little more of the cost to 
you.'' And we think it's important that the consumer get the 
benefit of that bargain, because if the insurer's taking a 
little bit more, they shouldn't be holding on to that and not 
complying with their obligations.
    Senator McCaskill. Well, once again, that fact underlies 
our desperate need for health care reform in this country, 
because if the Medicare rate has been lower than the UCR rate, 
that we now know was artificially too low, then therein you see 
all the kinds of incentives in the system to try to game it in 
order for doctors to come out whole at the end of the day. So, 
I think that's important.
    Final question. Was there any evidence of collusion that 
you all saw between these insurance companies as this data 
company was bought by UnitedHealthcare? Did all the other 
insurance companies know that this was now becoming their's--
that they were going to own this and it wasn't going to be 
independent and it wasn't going to be audited, or there wasn't 
going to be any oversight of it?
    Ms. Lacewell. We believe that the insurers that use the 
Ingenix system were aware of Ingenix's relationship with 
UnitedHealth Group, and they were aware that, once Ingenix and 
United bought up the competitors, that there was nothing else 
in the marketplace. And we believe that they were content with 
that, because it was a system that worked for all of them, 
collectively. It was the consumers who were not aware of this.
    Senator McCaskill. OK. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator McCaskill.
    Senator Udall, to be followed by Senator Lautenberg.

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you, Chairman Rockefeller. And I want 
to congratulate you for holding this hearing today. I think 
it's a very important topic that you're highlighting. It 
impacts my State of New Mexico.
    And I'd like to also say that the Senator from Missouri, I 
think, raised a very interesting question, here, the AMA hiring 
trial lawyers to bring justice to a situation, and I hope that 
that portends a rapprochement, or something like that, between 
the trial lawyers and the AMA, so that you can step forward and 
offer proposals for reasonable reform in the malpractice area. 
This is an exciting opportunity, I think, here for you.
    But, Dr. Nielsen, the ``double harm'' you cite in your 
testimony, where the patient actually ends up paying more than 
the fees outlined in her network of benefits, speaks to a 
current situation in my home State of New Mexico. Recently, 
industry interests have pushed for the right to form exclusive 
PPOs, something New Mexico's Medical Society opposes. In terms 
of timely access to health care, do exclusive PPO plans pose 
another kind of double-harm threat for consumers? And, in your 
estimation, is the push for exclusive PPOs cause for concern, 
given the Attorney General's findings from the UnitedHealthcare 
    Dr. Nielsen. You'll need to educate me about what's 
happening in New Mexico, because when you say an ``exclusive 
PPO,'' are you talking about a restricted network?
    Senator Udall. That's right. That's right.
    Dr. Nielsen. That is not new. That is not new. That's been 
around a long time. They've been done under the HMO umbrella. 
They've been done under--even a point-of-service sometimes has 
an exclusive extended network.
    The problem there is that the balance of power between an 
insurer and a physician, there is no comparison between the 
imbalance of power, particularly if that insurer is one of the 
large ones that services many employers in that State. We saw 
this in Nevada, for example, when one company bought up another 
health insurance company.
    So, it is a problem, because then sometimes insurers say to 
the doctors, ``Take it or leave it.'' It's then up to the 
doctor to either take or leave it. And if they feel that the 
volume--number of patients that they would see would justify 
the discount, then they make an informed decision to accept and 
be part of that network. And that's a fair negotiation. The 
problem of unfairness comes when the doctor does not have the 
ability to say no, because they would lose their entire 
    Senator Udall. Now, the settlement agreements in these two 
cases are great first steps to reining in managed-care's ad hoc 
cost-containment strategies. Is the case precedent set by the 
AMA's example enough, going forward? How do you see the Federal 
Government best addressing the conflict-of-interest questions 
raised by these two cases?
    Dr. Nielsen. I think your hearing is a remarkable first 
    I want to be sure that there--that it's clear that there 
are basically two parts to the kinds of settlements. And that's 
really very important. The settlements that you heard described 
by Ms. Lacewell that the Attorney General negotiated were 
essentially fixing this database, ceasing and desisting using 
the flawed database, and going to a new unbiased database, 
going forward. But, the other part is the settlement that 
UnitedHealthcare has reached with the AMA and the other medical 
societies, and that's really very important. It's different. 
That's reparation for the past actions.
    So, United has solved both of those, from their standpoint. 
There are three others that we are helping to come to that 
conclusion by filing lawsuits. The recent one was against 
WellPoint, yesterday. So, Aetna, CIGNA, and WellPoint have not 
yet reached a settlement on reparations; whereas, United has.
    We think that everyone needs to understand this. What the 
Federal Government will do, what the jurisdiction of the 
Federal Government is, compared to State laws, I--that's beyond 
my expertise as a physician, so I would have to turn to Mr. 
Chairman and ask, What is the role of the Federal Government 
    Senator Udall. Well, I'm not sure you're allowed to ask the 
Chairman a question, but I'll defer to our distinguished 
chairman, here.
    The Chairman. You have 13--12 seconds left.
    Senator Udall. I'm going to yield it to you.
    The Chairman. I know.
    The Chairman. That's why I'm offering you 12, now 10 
    The Chairman. All right.
    Senator Lautenberg?
    Thank you very much.
    Senator Lautenberg. Thank you very much, Mr. Chairman.
    And it's a great idea to hold this hearing and learn from 
what experienced people like our witnesses here know something 
    And when you see that--though I think that you did mention 
that--Dr. Nielsen, that the agreement with UnitedHealthcare is 
still awaiting formal approval by the Federal court--is that 
    Dr. Nielsen. That's correct, Mr. Senator. And that is going 
to be happening--we believe that that happens next week, the 
first hearing.
    Senator Lautenberg. And the area of discussion is about 
$350 million, is it?
    Dr. Nielsen. That's correct.
    Senator Lautenberg. $350 million. It's outrageous. You 
know, a scam is a scam is a scam, whether or not it's a street 
thug or a well-dressed corporate executive. That's been an 
interest of mine for a long time--I'm on the board of the 
Columbia University School of Business, and I was able to grant 
them a chair, some 8 years ago, in my subject, and I'd led one 
of America's great companies for 30 years--in business ethics. 
And we don't have that sprinkled in our dialogue often enough.
    Ms. Lacewell, last summer at the Federal court--and I think 
the Chairman touched on this--you proved your settlement with a 
New Jersey insurer, as you know, and detailed significant 
problems with the insurance companies underpaying patients. 
Now, your investigation found similar problems with the 
insurance companies operating in New York. What can be done to 
stop these companies across the country that are engaged in 
similar practices, but are not included in the New Jersey and 
New York settlements? Do you have any recommendations? I know 
it's outside of your direct province. What do you think?
    Ms. Lacewell. Senator, it's--obviously, it's a very 
important question. The Attorney General finds that 
transparency--bringing light to a problem has a very powerful 
effect, which is why, as Dr. Nielsen has noted a few times, 
this hearing is important. Because if the problem is in the 
shadows, probably no one will do anything about it. But, when 
light is brought to the problem, and the problem is articulated 
with detail and with proof and with vigor, the insurance 
companies really could not dispute that this was a real 
problem. And once it was brought out into the light of day, it 
became really too much for them to bear. And when you get the 
first to settle--and Ingenix being at the center of the 
problem--that generates a momentum of its own.
    Senator Lautenberg. So, you're saying they must pursue it 
with--helped by the knowledge that you've established in the 
State of New York. And when we look at the chart, we see this 
breach of conduct throughout. And despite what we heard before, 
we can't berate the activities of attorneys in trying to 
resolve these issues. So--I have a daughter who's one of them.
    There are--Mr. Bell, nine--there are nine States, plus 
D.C., that allow health insurance to deny coverage to women 
buying insurance on their own because they have been victims of 
domestic violence. And I've authorized a law protecting victims 
of domestic violence from having to live with a gun-carrying 
spousal abuser.
    How can insurance companies justify the denials of 
coverage? It's my understanding that, typically, pregnancies 
are not covered in their health care costs. So, (a) if that's 
true; (b) isn't that discrimination against women, also?
    Mr. Bell. Yes, I agree that that's a pretty shocking 
finding. I think that these issues were recently investigated 
by the National Women's Law Center, that did a report called 
``Nowhere to Turn: How the Individual Health Insurance Market 
Fails Women,'' where they looked at how flawed the individual 
insurance market is for women who are seeking coverage. They 
found, in many States, women had very difficult time purchasing 
maternity coverage; in some cases, the out-of-pockets were 
enormous, even if they were successful in securing it.
    And I think it's--is actually--the situation is even worse 
than that, in the sense that the individual insurance market is 
really a deeply flawed market, not only across gender lines, 
but for people who are older and sicker, or who have chronic 
illnesses and disabilities. There are all types of problems 
that consumers have getting access to affordable coverage in 
the individual market. And so, we would favor efforts to give 
consumers other options to get coverage, frankly. I mean, 
giving them a choice of enrolling in a public plan, like 
Medicare, or putting them into a larger pool. In states like 
New York, we have community rating, which broadly spreads the 
risks out across the entire marketplace. It gets rid of some of 
those discrimination issues. But, we still have affordability 
issues for younger people. So, clearly that's not a panacea.
    But, I think that the--this is a very important question. 
It could be addressed by tighter state oversight. I mean, why 
are the states permitting insurance companies to operate in 
this fashion in those states? And so, I think we need much more 
consumer-oriented oversight and enforcement. And we're 
certainly happy that we have it in New York; we'd like to see 
it strengthened there, as well, and strengthened in other 
    Senator Lautenberg. Yes. When you're--if you're a card 
player, in the vernacular, it's good to know the deck is fixed. 
In the case of Ingenix, the deck was fixed. And that was kind 
of the reference that the companies were using. Quite unfair.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lautenberg.
    Senator Begich, to be followed by Senator Klobuchar.

                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you very much, Mr. Chairman.
    Thank you all for being here today and giving your 
    If I can ask--and I want to ask, just, some general 
questions about the status of, kind of, what's next with the 
lawsuit, and then some policy questions, generally. But, now 
that it's been--it's in the process of settlement, where do you 
see the timetable in regards to the database development and 
availability for the public?
    Ms. Lacewell. Senator, the Attorney General has estimated 
about 6 months as an aggressive timetable to get the not-for-
profit up and running and have an initial database that can be 
available to the Nation. And when that happens, Ingenix will 
close its database to the Nation. So, insurers who have not yet 
signed on to the reform are going to need someplace to go, and 
we hope----
    Senator Begich. Sure. But----
    Ms. Lacewell.--they'll go there.
    Senator Begich. But, it'll be, you think, 6 months or a 
little bit longer.
    Ms. Lacewell. Yes, possibly a little bit longer, that's 
    Senator Begich. And then, how do you give access to that 
database for those that may not have Internet access or 
computer access? I know that may be difficult to think about, 
from New York, but I'm from Alaska, and we have some very 
small, remote communities that do not even have access to 
broadband or dial-up.
    Ms. Lacewell. That's a very important question. One of the 
things that we're looking at with respect to the proposed 
regulation in New York with the Department of Insurance is 
requiring insurers to tell the insured, upon request, what the 
amount of reimbursement will be, and to do it before they seek 
the medical treatment from an out-of-network physician. And so, 
whatever means of communication that is available to the member 
would entitle them to that information.
    Senator Begich. And would the database also have 
information, if you access it and you want to protest the fees, 
or whatever the right term is, it will show them how to do 
    Ms. Lacewell. We do----
    Senator Begich. They----
    Ms. Lacewell. Senator, we do want to include some consumer 
education efforts there, and we also hope that the amount of 
money that we've collected will enable us to embark on some of 
those efforts with some of those funds.
    Senator Begich. Right. And then, I guess all of you know--
as you know, the Congress is working, and the President is 
working, on massive health care reform. Do you see, within that 
reform, some sort of process or nationwide approach to this as, 
now, you have done through New York? I don't know what the 
right--who the right person to ask would----
    Dr. Nielsen, you've grabbed the mike, so you're it.
    Dr. Nielsen. Let me take a first crack at it. We are 
privileged to have been part of that discussion, and we look 
forward to being part of the discussion, both within the Senate 
and the House. So, absolutely, what you've seen is something 
that needs to be corrected. What you've heard about the pre-
existing conditions, not allowing a patient to get insurance--
let alone afford it, not even get it--those are issues that 
concern us deeply, and have for years, and we are on the brink, 
we think, of some very meaningful health system reform that 
will help all Americans.
    Senator Begich. And I do--I recognize that--meeting with 
Senator Baucus last week in regards to the issue of those that 
can't get insurance now, and how that can be fixed. But, I 
guess I'm kind of honing in on the permanency of the database. 
How do you make sure it's reviewed? How do you make sure it's 
consistent and that everyone has to participate? I mean, 
that's, I guess my--is that--have you, or any of you, proposed 
ideas to some of the leads in this area of health care--Senator 
Kennedy, Senator Baucus, and others?
    [No response.]
    Senator Begich. If not--it's not a trick question--if not, 
then would you do that? And would you do that in a timely 
    Dr. Nielsen. Well, it's going to be transparent, so anybody 
who has an out-of-network bill that would be submitted--that 
amount would be submitted to the database, and there would be 
no incentive to alter that database. So, it should be 
transparent to all. It would be available to consumers, to 
physicians, to a health plan. So, I guess we are hoping that 
the transparency will be what we need.
    Senator Begich. I guess--I don't know--I want to make sure 
you--you've done it through a lawsuit, but to make sure it's 
codified, from a national perspective. That's what I'm trying 
to get to. In other words, it's great that you've done it 
through a lawsuit, in your own way, but we're about to do 
massive health care reform. Is there a way to codify this to 
ensure that we don't have to go through this process again? And 
then, to regulate it, to a certain extent, because, you're 
right, it should be transparent, but, I think, 10 years ago, 
some people might say, it should have been transparent. So.
    Ms. Lacewell. That's right, Senator. And in New York, we're 
seeking to make those reforms permanent through a regulation in 
the State of New York, and Attorney General Cuomo would be more 
than happy to cooperate and facilitate other efforts that could 
be applied nationwide or, you know, as part of a Federal 
    Senator Begich. Can I just--my time is out, but can I 
encourage you to talk to the Attorney General and see if he 
would submit some information to--at least to Senator Baucus, 
Senator Kennedy, and myself? I mean, they're doing the 
legislation, but I have real interest in this issue.
    Ms. Lacewell. Absolutely.
    Senator Begich. Thank you very much.

                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much--am I next, 
    The Chairman. You are next, thank you.
    Senator Klobuchar. Thank you. I jumped ahead.
    Thank you, all of you, for being here and for your work. 
And just to clarify this--a little bit of what Senator Begich 
was doing--do, is UnitedHealthcare the only company that's 
settled, now, of these lawsuits?
    Ms. Lacewell. With respect to the Attorney General's 
efforts, UnitedHealth Group and Ingenix were the first. And 
that was important, since Ingenix was at the center of the 
problem. And then, all the other large national insurers that 
operate in the State of New York--Aetna, CIGNA, WellPoint--and 
large regional insurers that operate in New York--have all 
signed on to settlements to move away from Ingenix and to use 
the new system.
    There are, of course, West Coast-based national insurers 
that don't operate in New York that, at this point, we were not 
able to reach, but the new database is available to any insurer 
that wants to explore using it.
    Senator Klobuchar. So, the--I mean, the lawsuit involved, 
as you discussed, some--righting the past wrongs, and then also 
looking forward, which I appreciate, so that this database, 
paid for by the UnitedHealthcare settlement money, is used, 
then, for other people that aren't even on their--that weren't 
even customers of theirs. Is that correct?
    Ms. Lacewell. That's right, Senator.
    Senator Klobuchar. OK. And so, the other thing that I 
wanted to ask about was, Dr. Nielsen, in your testimony, you 
referenced the American Medical Association's National Health 
Insurer Report Card. And in AMA's analysis of major health 
insurers, Medicare was included. And, as you know, Medicare has 
been discussed here as the largest purchaser of health care 
services. And, while it appears that Medicare adheres strictly 
to a contract rate, we also know that there are issues with 
those rates. And, in fact, Mayo Clinic just came out--one of 
the most efficient health care providers in the country--came 
out to say that they lost $765 million in 2008 from Medicare 
patients. What do you think needs to be done to--for health 
care reform with this reimbursement rate?
    Dr. Nielsen. Let me quote Dr. Denny Cortese, who is the CEO 
of the Mayo, who actually----
    Senator Klobuchar. Who we both know.
    Dr. Nielsen. Who we both know, who was quoted in 
yesterday's New York Times, and he said, ``Medicare has 
systematically been underpaying for services,'' and he goes on 
to say, ``If more patients are enrolled in a Medicare-like 
program,'' he predicted, ``your very best providers will go out 
of business or stop seeing patients covered by the government 
plan.'' We can't let that happen. I mean, the Mayo obviously is 
a model of efficiency, as well as expertise.
    So, I think everyone knows, and there isn't anybody in the 
Senate who doesn't know, the problem with physician payments, 
and we will be back, talking about it, toward the end of this 
year, as well. So, it really is a problem. We have to--this is 
a safety-net program for our elderly, and we really must make 
sure that it's fiscally responsible and sustainable.
    Senator Klobuchar. Thank you.
    And the other thing Denny Cortese has focused on is the 
fact that if we're going to make it sustainable, we have to 
make it as efficient as possible. And one of the things that 
has most struck me is this geographic disparity issue. And I 
know it's hard when you're representing a national group, but 
an independent study out of Dartmouth showed that if the rest 
of the hospitals in the country simply used the protocol that 
the Mayo Clinic uses in the last 4 years of a chronically ill 
patient's life, where the quality ratings are incredibly high--
if we want to save money, Mr. Chairman--$50 billion, every 4 
years, in taxpayer money. So, as we talk about these rates and 
the Medicare rates and the good work that you've done here, I 
just think we cannot neglect this issue of making sure, as we 
look at reform, that these are offered in the most efficient 
    And I think people would be shocked to know that, in fact, 
the highest quality often comes from States with the lowest 
costs. Is that not correct?
    Dr. Nielsen. That is correct. And, in fact, in the White 
House Forum on Healthcare Reform, that issue was addressed, and 
I was asked directly by Nancy-Ann Min DeParle, you know, ``What 
is your profession going to do at looking at the geographic 
variation?'' It's an appropriate question that actually was 
originally addressed by Senator Baucus. They are both right to 
ask that. Our profession is very concerned about that.
    In our experience, the biggest variations occur when there 
is not a clear-cut path for the one right thing to do----
    Senator Klobuchar. Exactly.
    Dr. Nielsen.--such as beta blockers after a heart attack or 
aspirin on the way in to the hospital. So, we really need, very 
quickly, to make sure that we generate the evidence that we 
need to see what is absolutely necessary, and that we 
promulgate it. And we will be your partners in that regard.
    Senator Klobuchar. Thank you. It often seems that, also, 
this team--the medical team idea of--whatever you call it--the 
medical home or--what they do at Mayo and--or in many of our 
more rural areas, where you have a primary physician and then 
you have a team that works with them, is where you often find 
the lower rates, I think.
    So, thank you very much.
    The Chairman. Thank you, Senator Klobuchar.
    And then Senator Pryor and then Senator Snowe.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman.
    Let me ask, if I may--Ms. Lacewell, if I can start with 
you--if a consumer, John Q. Public, called his or her insurance 
company and asked them to explain the--what ``usual, customary, 
and reasonable reimbursement rate'' means, what kind of answer 
would they get?
    Ms. Lacewell. Well, Senator, that's an excellent question. 
Assuming the consumer could get through on the telephone, which 
is another big complaint that we get, in our experience the 
people who answer the phones are really not trained to answer 
that question and would simply refer the consumer to their 
written materials, which vary from plan to plan, and from area 
to area. And we took a look at the written materials, and they 
are frequently--they're simply unintelligible. And we met, 
then, with in-house counsel for a number of these large health 
insurance companies, and we pointed them to the page and said, 
``What does this mean? What are you saying here, when you go, 
paragraph after paragraph, `the lowest--the maximum allowable 
rate' '' and all this other legal jargon and five different 
ways that they may compute it? And when pressed, it was 
amazing, they sometimes said, ``I really don't know. I can't 
explain it to you.'' So, even in-house counsel couldn't explain 
it. So, I don't think the customer reps could, either.
    Senator Pryor. Dr. Nielsen, let me ask you the same 
question. If a doctor calls and----
    Dr. Nielsen. Sure.
    Senator Pryor.--asks, you know, what does ``usual, 
customary, and reasonable'' mean, what do they tell the doctor?
    Dr. Nielsen. Well, they would tell the--Senator, they would 
tell the doctor the same gobbledygook, but when it gets down to 
the real question, which is--from the doctor--and this happened 
many, many times before the lawsuit was filed in 2000--they 
said, ``How''--the doctor would say, ``How in the world did you 
really calculate that in this area?'' And the answer was 
always, ``It's proprietary.''
    Senator Pryor. Yes, OK.
    Let me follow up on that with you, Ms. Lacewell, if I can, 
and that is--you've spent a lot of time on this subject dealing 
with this issue, and I appreciate that. In all of your time and 
all your efforts there, were you able to find any written 
material that was available to anyone outside the insurance 
company about how these ``usual and customary rates'' were 
    Ms. Lacewell. No, we were not.
    Senator Pryor. So, in other words, even if a customer 
said--or a consumer said--a policyholder--``Send me something 
in writing so I can understand this,'' there is nothing that 
you've ever found, that's gone outside the insurance company, 
to tell you how that works.
    Ms. Lacewell. No, that's right.
    Senator Pryor. And also, in terms of disclosure to 
policyholders, did the insurance companies ever disclose about 
the sources of information and the company that we--is Ingenix, 
you know--and whether--who owns that, and how that's set up? 
Have they ever--did they ever disclose that to consumers, as 
far as you can tell?
    Ms. Lacewell. Senator, another excellent question. Not only 
did the insurers not disclose Ingenix was doing this or that 
Ingenix was part of the health insurance industry, they 
frequently affirmatively misstated how they were determining 
this, by either referring to entities that used to do it, 
because they hadn't updated their materials, or by saying, ``We 
rely on, you know, independent data,'' and things that really 
misled consumers who were reading that language.
    Senator Pryor. OK.
    Mr. Bell, I don't want to leave you out of this 
conversation, so let me ask you--if John Q. Policyholder is 
trying to get information from their insurance company so they 
understand how their policy works and, when they pay their 
premiums, what they're actually going to have covered, and the 
insurance company sort of stonewalls them, you get an 800 
number, maybe you get someone who doesn't know what they're 
talking about or some gobbledygook you can't read, what can a 
consumer do to get that basic information about how their 
particular insurance policy works?
    Mr. Bell. Well, we certainly encourage people to seek 
outside help, and particularly to contact their state's 
insurance departments or the Attorney General in their state. 
In our state, we have a health care bureau at the Attorney 
General's office that serves as a great early warning system 
for all kinds of consumer complaints and problems.
    But, in the case of this issue, I mean, I think our overall 
takeaway is, the consumer was really in a fog about how the 
charges were calculated. It was hard to go up against the word 
of the insurance company. I've seen some websites of insurance 
departments around the country, where they basically said, ``We 
can't help you with this,'' you know, ``We don't regulate this 
practice. You're basically on your own.'' So, the consumer 
wasn't sure if the doctor was charging too much, as Dr. Nielsen 
mentioned, or whether the insurance company was underpaying, 
and it just persisted for many, many years like that.
    So, my experience is just that people often--their eyes 
glaze over when it comes to insurance, and they just feel like 
they can't dig into it. And I'm sure that that happened many, 
many times with these types of billing underpayments.
    Senator Pryor. Mr. Chairman, I just have one quick follow-
up on that. In our state, our state insurance department and 
insurance commissioner, he or she has a team of, sort of, 
consumer helpers there, a hotline or something that you can 
call and talk to them about this. And I think they try to be 
helpful. But, I also understand that a lot of insurance 
departments around the country, they have this other mission, 
and that is, they want to provide a good business climate for 
insurance companies so they'll have a lot of insurance 
companies doing business in their state. Do you think there's 
an inherent conflict there?
    Mr. Bell. There is a longstanding tension between, sort of, 
the role of the insurance department to promote the financial 
health and solvency of companies--because clearly they don't 
want companies to go out of business, and that is often 
considered to be ``job one,'' is to look out for that. And so, 
sometimes consumer protection issues, they both get less 
emphasis, but also can sometimes conflict with that mission. 
And that's why we think it's useful to have--to establish an 
independent unit, such as an independent office of consumer 
advocate, as Texas and some other States have done, to ensure 
that there's someplace in the government that really is working 
just for the consumer. Just like we have units that intervene 
on utility-rate hearings, you know, why not have similar 
counterbureaucracies or counter---you know, public counsel that 
would work on behalf of the consumer?
    Senator Pryor. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Pryor.
    Senator Snowe?

                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman.
    Well, one of the things that we're learning today is that 
millions of Americans who required health care services were at 
the mercy of a small medical data company called Ingenix and 
produced these tables, those ``usual and customary rates'' that 
were accepted as gospel truth in the industry. If Ingenix said, 
``Your doctor was charging you above the going market rate,'' 
then you had no choice but to pay. I mean, you were simply out 
of luck, because Ingenix always got the last word, it appears.
    But, it looks like the reality was that the data was all 
smoke and mirrors. For example, Ingenix said its data was based 
on actual provider charges, the actual amount that doctors were 
charging the patients. So, let me ask you, Dr. Nielsen, did 
Ingenix ever call you or your organization to collect the fees 
that the doctors were charging their patients?
    Dr. Nielsen. Let me make sure, Senator, that I've 
understood your question. Did they ever call the AMA to----
    Senator Snowe. That's correct.
    Dr. Nielsen.--to find out what the fees were?
    Senator Snowe. Yes.
    Dr. Nielsen. We are prohibited from collecting that 
information, because of antitrust concerns.
    Senator Snowe. OK. So, the medical data came from the 
insurance, but--the medical data that came from the insurance 
company, is that correct? I mean, that's----
    Dr. Nielsen. The medical data came from individual 
physicians who submitted their claims. So, they got the 
information. The actual claims went in. It's what they did with 
it thereafter that's the issue.
    Senator Snowe. But, the medical-charge data came from the 
insurance company or specifically from the physician.
    Dr. Nielsen. Came from the physician----
    Senator Snowe. Physician to the----
    Dr. Nielsen.--to the insurer.
    Senator Snowe.--insurance company.
    Dr. Nielsen. Or--either through the patient or directly to 
the insurer. And then, the insurer decided what they would pay, 
and the patient was left with the rest.
    Senator Snowe. So, what we're discovering, today, is that 
obviously all of the information wasn't turned over to Ingenix 
and, you know, the health--the insurance companies would throw 
out some of their higher-cost charges so that the rates would 
be much lower. Is that correct?
    Dr. Nielsen. That's correct.
    Senator Snowe. Yes.
    Dr. Nielsen. And in the written testimony, we go through 
the various ways in which that was done.
    Senator Snowe. OK. So, you've been trained as a doctor and 
as a medical researcher, so maybe you can answer this question. 
Statistical experts who looked at this Ingenix database have 
concluded it's--that it is a convenient sample of medical 
charges, not a representative sample of medical charges. Can 
you explain that difference----
    Dr. Nielsen. Yes. It's a----
    Senator Snowe.--between the two?
    Dr. Nielsen. It's a pretty simple difference. If it's 
representative, the individual doing the sampling works very 
hard to make sure that it accurately represents the full range. 
A convenient sample is left to the person doing the sampling to 
decide how to do the sample. And it's a very big difference.
    Senator Snowe. The big difference, in terms--because they 
don't analyze the data.
    Dr. Nielsen. Sure.
    Senator Snowe. Obviously, in this instance--in these 
instances, they did not analyze what was--you know, but----
    Dr. Nielsen. What was inconvenient.
    Senator Snowe.--what was inconvenient. So, obviously it was 
a very convenient sample for the insurance company, but a raw 
deal for consumers. They underestimated the real charges, and 
consumers obviously paid billions of dollars out of their own 
pockets that clearly the insurance companies should have been 
    Ms. Lacewell, I understand that part of the settlement that 
you reached with the insurance companies is set up a new 
independent database to estimate the ``usual and customary'' 
data charges. Can you tell us how this new database would be 
better than the old one?
    Ms. Lacewell. Yes, Senator. What we intend to do is have a 
qualified university be involved with an independent not-for-
profit that will create the new database. And what we have 
looked to here are the incentives. So, whereas the incentives 
we found with the database being run by the health insurance 
industry, that has an obligation to reimburse, was to skew it 
downward, we feel that, with a not-for-profit company, that is 
independent from the industry and that is associated with a 
university that will do academic research based on the 
database, and therefore has an incentive in it being accurate, 
that we will be moving the system out of conflicts and into 
independence and more accuracy.
    Senator Snowe. And when is this system going to be 
    Ms. Lacewell. We anticipate it'll take, on the aggressive 
side, about 6 months.
    Senator Snowe. Ms. Lacewell, on the out-of-network premium 
increase and--in your investigation of these procedures, did 
you find any justification for insurers to charge customers 
going out of network a higher--for higher prices than were 
charged the providers who were given the same--given the in-
network rate--I mean, they weren't charged any more, but yet, 
the customer going outside of the network was charged a higher 
    Ms. Lacewell. Yes, Senator, I----
    Senator Snowe.--for those services?
    Ms. Lacewell.--I think the theoretical justification by the 
insurer is, the insurer has not been able to negotiate a lower 
rate with the doctor and, therefore, is going to have to pay 
more. And so, they're passing on some of that cost to the 
consumer. The problem, of course, lies when the insurer does 
not keep their promise to make sure that the balance of the 
economic cost is fair, based on that promise.
    Senator Snowe. What about balance billing, which is another 
issue that--you know, that, unfortunately, so many individuals 
are having to pay because of an underpaid insurance, so the 
doctor goes directly to the patient to recover those charges. 
Now, in California they have, you know, prohibited this 
practice. What's your evaluation of it? Is it unfair to allow 
balance billing?
    Ms. Lacewell. Senator, what we have found, at least in New 
York, is that balance billing is allowed when the patient is 
out of network, has gone out of network, because there's no 
contract between the doctor and the insurer. So, the doctor 
doesn't look to the insurer, they look to the patient. In other 
more ordinary circumstances involving in-network, it's 
generally prohibited, because the doctor must look to the 
    The reason that this is such a huge consumer issue is 
because balance billing is typically allowed, in that it is the 
consumer who's then stuck in between the doctor and the 
insurer, and is the one who has to pay the cost.
    Senator Snowe. But, generally that's a practice that occurs 
in network and not--and not under any other circumstance.
    Ms. Lacewell. Generally, we find balance billing being 
allowed and occurring out of network.
    Senator Snowe. In out of----
    Ms. Lacewell. When it happens in network, it's frequently--
    Senator Snowe. As----
    Ms. Lacewell.--illegal.
    Senator Snowe. OK. So, it's generally illegal----
    Ms. Lacewell. That's right.
    Senator Snowe.--in that case, but it's out-of-network that 
is more conventional practice.
    Ms. Lacewell. That's right, Senator.
    Senator Snowe. Thank you.
    Well, let me just make another point, Mr. Chairman. You 
know, a Government Accountability report came out recently, at 
the request of Senator Bond, Senator Durbin, and Lincoln and 
myself, and it's even more troubling to see what's happening 
here, because there's very little competition in the insurance 
market. And based on the study that, you know, I requested back 
in 2005, and to compare that study to the results of the study 
that was released last week, that the combined market share of 
the five largest insurance companies now controls 75 percent of 
the market in 34 of the 39 States that we surveyed, and more 
than 90 percent in 23 of these States. So, it tells you that 
there, you know, dramatic, direction toward less competition, 
if any, in many of the States across this country. So, when you 
see--combine it with all of these deeply troubling practices, I 
think it really is an enormous burden to consumers all across 
this country, because there's virtually nowhere to go with 
respect to competitive--competition in the health insurance 
industry. There are no options, essentially, in many of these 
States, as, you know, indicated by this report.
    Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Snowe.
    This is kind of a--what I would call an investigative 
hearing, and the first of two, so we're trying to lay 
predicates, which is why we're trying to establish a base from 
you all, not just ask you questions, to give you a chance to 
talk about all kinds of things.
    Dr. Nielsen, you bring up an issue in your testimony that I 
want to talk about a little bit more. You say that when the 
insurance industry uses those Ingenix numbers to reimburse a 
doctor or other health care provider, they just look at the 
service delivered, but not the person who delivered the 
service. Is that correct?
    Dr. Nielsen. That's correct.
    The Chairman. So, let me give you an example and ask you to 
comment on it.
    Say, a patient with a heart problem goes to see a doctor to 
discuss the results of an EKG--an electrocardiogram test--the 
patient could go in to see his general practitioner and discuss 
test results, or he could make an appointment--or she--with a 
board-certified cardiologist who is a chair, for example, of a 
cardiology department at a major university.
    Now, let me ask if I have this right. Ingenix doesn't make 
any adjustment for the fact that a board-certified heart 
surgeon might charge more for this service than a general 
practitioner. There is one code for this service, listed on 
here, and everybody who performs it gets reimbursed at exactly 
the same rate. Is that correct?
    Dr. Nielsen. That's our understanding, Senator Rockefeller. 
And it's even worse than that. It's--it may be that the service 
was rendered by a nonphysician, so those fees were also mixed 
into this mix.
    The Chairman. So, a non-----
    Dr. Nielsen. So, you're absolutely right.
    The Chairman. But, a nonphysician could do an EKG?
    Dr. Nielsen. They can.
    The Chairman. What kind of nonphysician?
    Dr. Nielsen. Nurse practitioner, physician assistant.
    The Chairman. I've got a healthy respect for physician 
assistants, but your point is still----
    Dr. Nielsen. So do we. So do we. And that's----
    The Chairman. I mean, a place like West Virginia, we----
    Dr. Nielsen. A place like New York, too.
    The Chairman. Yes.
    Dr. Nielsen. We value members of the health care team, and 
there are many. That really isn't the issue. The issue is, this 
is America, and when a patient elects to go out of network, 
they need to know where they're going, what the charge is going 
to be, and they have a right to ask for that. They also have a 
right to know what they're going to be reimbursed from their 
insurer. That really is the issue.
    It--to do anything different is to essentially price-fix. 
We don't do that anywhere else within our economy.
    The Chairman. I want to come back to that in a minute.
    So, anyway, Ingenix only collects service-code data. And it 
doesn't collect data on who was delivering the service. The so-
called modifier data is available, but Ingenix does not use it.
    Dr. Nielsen. That's correct. It's not that it isn't 
collected. It would be on the claim. It is not used. It's what 
happens after the claim gets there that----
    The Chairman. It might be----
    Dr. Nielsen.--is the problem.
    The Chairman.--part of what's cut off----
    Dr. Nielsen. Correct.
    The Chairman.--the top, yes.
    I can see what the problem would be with this system. It's 
an apples-and-oranges comparison. You could be a cardiologist 
whose charges are reasonable compared to other cardiologists 
with the same level of training, but if you compare your 
charges to when general practitioners charge to read an EKG, 
all of a sudden your charges look excessive.
    Dr. Nielsen, do you know why Ingenix and the insurance 
industry do not collect information about providers' experience 
or qualifications when they calculate the ``usual and 
    Dr. Nielsen. I guess you would have to ask them why they 
did all the things that they did----
    The Chairman. Well, we're----
    Dr. Nielsen.--that did not represent the actual charges. I 
don't know the answer to that.
    The Chairman. Yes, well, we're going to.
    Can you explain to us why the American Medical Association 
believes that insurers need to consider the experience and 
expertise of the person delivering the service?
    Dr. Nielsen. Sure. Sure. Where do you want----
    The Chairman. Please do.
    Dr. Nielsen. Where do you want me to start? Where do you 
want me to start? There is----
    The Chairman. Laying the case, just----
    Dr. Nielsen. I'm an internist. I also have a subspecialty 
in infectious diseases. I read EKGs. I have billed for the 
reading of an EKG. If there was a complication on that EKG that 
I wasn't certain that I could interpret, I would certainly send 
the patient to the best cardiologist or electrophysiologist I 
could find, and that person would be entitled to charge for 
their expertise, for their years of training, beyond what I 
    The Chairman. OK. I appreciate that response. But, next 
week there's going to be an insurance executive sitting right 
where you are. And let me give you a preview of what they're 
going to say. They're going to say that ``usual and customary'' 
rate services serve to restrain doctors from overcharging the 
patients. Higher doctor bills are good for doctors, but not for 
everybody else. So, how do you respond to their argument?
    Dr. Nielsen. I'm warming up the chair, here. I hope----
    The Chairman. You can come back.
    Dr. Nielsen.--it's still warm by the time--by the time he 
gets here.
    The American Medical Association has strong ethical policy 
prohibiting excessive charging. The insurance industry would 
like you to believe that what they did, this scheme, kept costs 
down. It didn't. What it did is, it passed costs on to 
patients. That's the problem. They got the profits at the plan, 
the patients got stuck with the bill. That's the issue. Don't 
let them kid you.
    The Chairman. With your forbearance, Senator Begich, just 
one more quick question.
    You mentioned earlier about not being able to do some 
things because of collusion. It's a very interesting word in 
American law and practices of all sort. After 9/11, the first 
bill that the Congress passed was to allow--make it legal for 
the Central Intelligence Agency and the FBI to talk to each 
other. They were not allowed to share information or to talk to 
each other about any case, even though one might have 
information that bore directly on what another--the other was 
doing. You know, the FBI arrested, the CIA surveilled, and the 
twain shall never meet. And I think we paid a terrible price 
for that, in terms of national security, over many, many years. 
And we changed that law. As I say, that was the first one we 
    Where do you--if you can't find out something--and I'm not 
a lawyer, so I don't know how collusion--good collusion, bad 
collusion, allowable collusion, not allowable collusion--but, 
where does collusion--where do you think the collusion laws are 
    Dr. Nielsen. I'm not a lawyer, either. We do use them when 
we have to go to court, but we also take care of them when they 
get sick, so----
    I--we are very--we have been very concerned, over the 
years, about what has been a pretty aggressive interpretation 
by the Federal Government of antitrust regulation. We have 
not--against physicians; that's a very important thing to 
understand--we have not seen similar antitrust enforcement 
actions against insurers. You heard Senator Snowe describe the 
consolidation of the health insurance market, to the point of 
real market control, without enforcement action. So, doctors 
are afraid of enforcement action.
    There is one thing that will help. The new database, with 
the transparency of out-of-network charges, that will be 
transparent to all. It will available to everyone. A doctor can 
find that out, as well. And that avoids the collusion 
allegation, I believe.
    I'm not sure I can answer it any better than that, Senator 
    The Chairman. No, you did a good job. Dr. Lacewell. I mean, 
Ms. Lacewell.
    Ms. Lacewell. Yes, sir. Two comments on the anticipated 
position of the insurance industry about overcharging by 
    One is, we're a consumer advocacy organization, and what we 
have endeavored to do is to make sure that the promise made by 
the insurer is kept. And the promise is, ``We will reimburse 
you, based on what doctors typically charge,'' not on what they 
should have charged, in the view of the insurer. And the 
insurer extracts that higher premium, based on that promise. 
And if they think that that particular arrangement is not 
satisfactory for them, economically, then what they ought to do 
is to change what they promise and not break the promise that 
they've made.
    In addition, the Attorney General believes that, to the 
extent that there are inefficiencies in the market, for health 
care charges or health care services, transparency will be a 
good thing. So, this Ingenix database that kept everything in 
the dark and didn't allow anybody to know what the rates were 
going to be, or the reimbursement rates were going to be, we 
think, for the insurers, actually did more harm than good. And 
to bring to light what doctors are charging in various parts of 
the country for various kinds of services, we believe, will 
bring efficiencies and competition to the market, and 
therefore, be a good thing in that regard.
    The Chairman. Thank you. Thank you.
    Senator Begich, it's your turn.
    Senator Begich. I'll be very brief. I just have a--I want 
to do a little follow-up there. And it was an interesting 
question the Chairman asked you in regards to AMA medical folks 
in regards to excess charges. How do you--in your code of 
conduct, how do you monitor that if you can't talk to each 
    Dr. Nielsen. It's not easy.
    Senator Begich. No, that's----
    Dr. Nielsen. I will tell you that this is a problem. I have 
it with me. I'm--anticipated that it might--the issue might 
come up, so I brought the ethical policy with me. I have it 
here somewhere.
    Senator Begich. That's OK. I recognize----
    Dr. Nielsen. Well, but----
    Senator Begich.--that that's part of the----
    Dr. Nielsen.--but, let me tell you what we used to do----
    Senator Begich. OK.
    Dr. Nielsen.--because--in the old days, before there was 
this aggressive antitrust enforcement concern. What we used to 
do is, county medical societies used to be able to sanction 
    Senator Begich. Oh.
    Dr. Nielsen.--who charged excessively. And how did they 
know? Because a patient would complain to the Ethics Committee. 
That--we can't do that anymore. It's really very difficult to 
figure out what should be charged.
    Now, if someone is totally gouging a patient, what's the 
most important thing that happens? The patient figures that 
out, leaves the doctor, tells everybody they know--and they all 
know a lot--and the doctor's reputation is ruined. The problem 
is, that's what happened with the Ingenix database, and the 
doctor didn't gouge them. But, if the doctor was charging 
excessively, patients figure that out, they switch doctors, and 
they tell everybody they know.
    Senator Begich. Then, on the information database--it was 
interesting to hear discussion of how--when the information is 
put in--or the future--let's talk about the future, not the 
past--when the new database is established, who determines--is 
all the data going in, and then it's just calculated from that, 
or is it a selective batching that's done? I'm just trying to 
understand that piece of it.
    Ms. Lacewell. Yes, Senator. What we anticipate is that 
qualified people, from the university, who are experts in these 
areas will make independent decisions about what kinds of 
information should go into the database, what the sources of 
that information should be, and how it should be collected, 
audited--which, by the way, Ingenix did not audit its data, 
either--but, what kinds of protocols and sampling are 
appropriate. We want independent experts to do that, and to 
make those decisions independently, with an incentive that 
they're getting it right.
    Senator Begich. So, they'll set some protocol process that 
then will adhere to--throughout the database collection----
    Ms. Lacewell. That's exactly right.
    Senator Begich. OK.
    Do you think that--any one of you can answer this, or 
hopefully all of you might have a comment on this--do you 
think--again, in health care reform--that we should require all 
health insurance companies to submit data, if there is a 
protocol set up for a database--require them all--in other 
words, you talked about the East Coast ones--I mean, we've got 
Blue Cross. Huge. Controls a sizable amount of our market. Had 
huge adjustments last year, of 25 percent. That's why our city 
is self-insured now.
    Ms. Lacewell. Right. The Attorney General would certainly 
like to see all insurers contribute data, if they can. Now, 
within New York State, we have some smaller not-for-profit 
local Upstate insurers----
    Senator Begich. Sure.
    Ms. Lacewell.--as to whom it might be a burden.
    Senator Begich. OK.
    Ms. Lacewell. But----
    Senator Begich. But, with some limitations, would you think 
some of the larger ones--would it make sense to require them to 
do this?
    Ms. Lacewell. Yes, it would, and it would help bring rigor 
to the database.
    Senator Begich. Do--the other two, do you agree with that?
    Mr. Bell. Yes.
    Dr. Nielsen. Yes.
    Senator Begich. And do you think that's something that we 
should think about with our health care reform legislation.
    Mr. Bell. Yes.
    Ms. Lacewell. Yes.
    Senator Begich. OK.
    That's all, Mr. Chairman. I appreciate it.
    The Chairman. It's going to be a large piece of 
    Senator Begich. Well, you know, it's a big--it's a big 
    The Chairman. It's interesting, you know, that--and this a 
side comment on my part, but I think the President chose to 
take on everything--you know, climate change, energy, 
education, health care, banks, housing--and do it all at once. 
And I happen--to think that's the right way to do it. And then 
people talk about everything--you know, climate change is just 
an absolutely huge subject, one which I'm confronting in West 
Virginia, to unhappy reviews, but, nevertheless, you know, West 
Virginia has the most to gain by acting well, and the most to 
lose by continuing practices that have taken place for over 100 
    So, I mean, this is a big risk we're taking, and never has 
there been so much asked of the Congress. And so, Senator 
Begich's question is very interesting, because, you know, we 
had a 2-hour meeting yesterday, so-called ``Board of 
Directors'' of health care reform, which I think is an obscene 
title to give to what--we should just say ``nine Senators on a 
bipartisan basis''--and, there are a lot of people that don't 
want health care reform. They don't necessarily want it, 
because they don't want the President to get credit for it. 
They don't want it because they have, as so--is so typically 
the case--I mean, as you found, this morning, we started the 
discussion yesterday on the--on broad health care reform, and 
immediately somebody pounced right on trial lawyers, ``Well, 
until we get the trial-lawyer thing, we can't--obviously can't 
talk about health care reform.'' So, it's going to be 
incredibly complicated. And it's going to take time, but it's 
going to be worth it, because I think all of these things have 
to work in tandem. And I left out education. All these things 
have to work in tandem, at the same time. If we don't do 
climate change, what the heck difference does it make what our 
national debt is, to our great-grandchildren? I mean, they're 
going to be underwater and won't be thinking about that very 
much. I mean, it's a very interesting time, and your 
contributions here are huge.
    I just want to wrap up with a couple of points.
    What I think we've learned today is that there's a reality-
based prevailing market price for medical services, and then 
there is a fictional ``usual''--UCR rate used by the insurance 
companies. Thanks to Attorney General Cuomo and you and others, 
we know that the insurance industry's reimbursements were just 
dramatically lower than reality in New York--in some cases, by 
25 to 30 percent.
    Now, Ms. Lacewell, if I wanted to find out if the people in 
my State of West Virginia, which doesn't have the resources of 
your Attorney General's office, or maybe the vigor of your 
Attorney General's office--if I wanted to find out if people 
were getting underpaid in the same way that your consumers in 
New York were, how would I figure that out?
    Ms. Lacewell. Well, Senator, the way that we did it was, we 
subpoenaed two sets of information. One, we subpoenaed the rate 
information coming out of Ingenix for the particular medical 
codes and--for particular ZIP Codes. And then we went to the 
insurance companies, and we subpoenaed--that operated in those 
areas--and subpoenaed them for the medical bills they had 
received from doctors for the same services in the same areas. 
So, we had, sort of, Ingenix and mini-Ingenix--or bad Ingenix, 
good Ingenix--and then we could compare the two. And we did 
that through an economist.
    It seems to me that--with subpoena power, that could be 
replicated anywhere.
    The Chairman. Do you know we've added that on, in this 
    Ms. Lacewell. So I have heard.
    The Chairman. We've never heard it--we've never had it 
before. And it's wonderful. I mean--actually, I--it wasn't 
Olympia Snowe, but her colleague from Vermont and Senator Levin 
mentioned to the EPA, who had been refusing to give information 
for a long time--they just mentioned, ``Well, OK, then we'll 
come subpoena it.'' The next day, they had all of the 
    Ms. Lacewell. Yes.
    The Chairman. So, it's just not having it----
    Ms. Lacewell. Yes.
    The Chairman.--it's what--it's just saying it, sometimes 
will get you your result.
    Ms. Lacewell. That's right.
    The Chairman. Please.
    Dr. Nielsen. Could I just make a suggestion, and maybe ask 
Linda Lacewell to comment on it?
    It is now clear, by view of the settlements, that the 
Ingenix database was flawed. And it's pretty clear the range by 
which the underpayment occurred. So, I wonder, Senator 
Rockefeller, if you could simply go to the insurers, the health 
insurers who operate in your State, and say to them, ``How many 
out-of-network claims did you pay? And what were they?'' And 
then extrapolate that. I--and I don't know if that's 
statistically something that could be done without hiring--
because we know they're flawed----
    The Chairman. And that's the point. The--obviously, that 
could be done. But--for example, insurance commissioners in 
states, like ours, are always--you know, there's no money for 
them. There's never enough money for them to do anything except 
sort of basically keep up with keeping their shops running. 
That can also be true in attorneys general offices. You know, 
they have--the attorneys general spent a lot of time on the 
road, but they don't really have the resources to do the kind 
of deep investigative research, which we're trying to here to 
lay the predicate for the meeting on Tuesday. We're going to do 
a lot of that, on behalf of consumers, because we think this 
committee ought to relate to consumers as well as railroads and 
airplanes. So, that's a problem.
    Ms. Lacewell. Mr. Chairman, it seems to me that the 
Attorney General's investigation has created enough doubt about 
the integrity of this database that----
    The Chairman. That would----
    Ms. Lacewell.--it is incumbent----
    The Chairman. That'll help.
    Ms. Lacewell.--incumbent upon any insurer to demonstrate 
how they think that what they're using is accurate, because 
they are promising to pay, based on a certain kind of rate. And 
we've demonstrated, as Dr. Nielsen indicated, that the database 
is defective, that it does result in under-reimbursement, at 
least in some areas that we've affirmatively proven. And so, 
the burden really ought to be on these other insurers to 
demonstrate to the country----
    The Chairman. Well, this is, in effect, what you meant by 
the domino----
    Ms. Lacewell. Yes.
    The Chairman.--effect.
    Ms. Lacewell. That's right.
    The Chairman. Yes.
    OK, final--the final thing is--has already been asked, I 
think, by somebody else, and that is, Why didn't we get to all 
of this earlier? I'll ask that to you, Mr. Bell. I mean, why 
didn't we get at this problem earlier? I mean, people have 
been--we're talking about hundreds of millions of dollars. They 
settled for 350, 325, whatever it was, and they're probably 
thrilled to do that, and they're still making a ton of money. 
And there are many, many others out there, and one of them you 
just sued yesterday. They have lots and lots of money. I mean, 
you know, you can--there are always ways to avoid these things, 
and we seem to have avoided them pretty well, up until New York 
took these steps.
    Mr. Bell. Senator, I think it partly goes back to the 
resource question that you just mentioned, is that the--as 
we've discussed earlier, the insurance commissioners have a 
primary mission of assuring financial safety and soundness. A 
lot of them don't have sufficient resources or--and sometimes 
they don't have the orientation or the inclination to 
aggressively pursue an investigation like this one.
    So, I--what I hope will come out of this is that--a lesson 
for the country, that when you get it right, when somebody 
steps up and exposes a financial abuse, that's something that 
consumers are very concerned about, and they are going to 
support solutions that create greater accountability and 
    And so, we've said a lot of nice things about Attorney 
General Cuomo, because he has done an excellent job for 
consumers, and--just as the plaintiffs did in these lawsuits by 
challenging this practice. And I think that they also have a 
role. There's a role for private rights of action to bring 
accountability, in some cases, where public officials are 
unable to act.
    So, I think a heightened sense of--you know, more resources 
for regulators, and more inclination to go after consumer 
problems, is something that we absolutely need.
    The Chairman. But, you know what? It's also a question of 
zeal, isn't it? You know, I was a Governor for 8 years, and the 
last appointment that I made was the insurance commissioner. 
Now, I don't know why that was, but it was a fact. And I had a 
very, very hard time trying to find anybody, in a small state, 
with a small salary for that position, who would be willing to 
take that position. And, as a result, I got a good person, but 
the energy level wasn't, perhaps, as high as I would have 
    And I think that part of what motivates the Attorney 
General of New York and you, Ms. Lacewell, is that you are 
zealous on this. I mean, you're going to get to the bottom of--
you seek malevolence, you relish malevolence, you want to 
expose it----
    The Chairman.--and you want to correct it. And it's just--
it's all very interesting to me, and I just--I thank you very 
much for being here.
    Ms. Lacewell. It's----
    The Chairman. I think we have laid a predicate for next 
Tuesday--that is, if we should all be here. Maybe we can 
videostream it to you all.
    Ms. Lacewell. That would be great.
    The Chairman. Thank you so much.
    This hearing is adjourned.
    Senator Begich, did you have any other questions?
    Senator Begich. No, thank you.
    The Chairman. OK.
    Thanks so much.
    [Whereupon, at 12:23 p.m., the hearing was adjourned.]
                            A P P E N D I X

  Prepared Statement of Mary Reinbold Jerome, M.D., Yonkers, New York
    My name is Dr. Mary Reinbold Jerome and I live in Yonkers, New 
York. I thank Chairman Rockefeller, Ranking Member Hutchison, and the 
Members of the Committee on Commerce, Science, and Transportation for 
inviting me to speak this morning.
    In July 2006, I was diagnosed with advanced stage ovarian cancer. I 
am currently being treated at Memorial Sloan Kettering cancer center, 
where I have received excellent care. Since my diagnosis, I have had a 
series of operations, and I received two separate rounds of 
chemotherapy, the second of which just ended. I did have a recurrence 
of the disease, but thankfully, now I am currently in remission.
    When I was diagnosed with cancer, my primary care physician 
recommended that I get treatment at Memorial Sloan Kettering. At the 
time, that hospital was the only recognized, comprehensive cancer 
treatment center in the New York City area. Even though the hospital 
was not in my insurer's network, I had paid for an out-of-network 
coverage, part of a point-of-service plan. I had always been confident 
that paying for the out-of-network option provided peace of mind with 
respect to the financial burdens associated with catastrophic medical 
    In reviewing the massive number of bills for my treatment, I 
noticed that over and over again, Memorial Sloan Kettering was not 
being reimbursed at an amount that was anywhere close to the cost of 
their services. I was then responsible for what my insurance company 
would not pay.
    When I was diagnosed with cancer, I thought the most difficult 
hurdle I would face would be the disease. Little did I know, that 
dealing with my insurance company would be my greater battle, because 
unknown to me, they were operating with deceptive methods of 
reimbursement. I had to battle cancer--and I am still battling it--and 
I had to battle my insurance company to try and get fair coverage. It 
was almost too much to bear.
    It was also shocking to discover firsthand how callously and 
deceptively insurance companies treat people while they are fighting 
for their lives. Throughout my life, I have believed that people had 
principles, that they abided by a code. My Mom and Dad were in the 
military--the ``Service'' is what we called it. When we were younger, 
my brother and I tried to live up to our parents call to service; he 
was in the army and I joined the Peace Corps. Our parents are now 
buried at West Point, but we have always tried to live by the values of 
duty, honor, and country.
    But even at this point in my life, I was surprised to see an 
American company not abiding by any code at all. These insurance 
companies showed no regard for duty; they have no regard for honor; 
they have no regard for the citizens of this country. They take 
advantage of their countrymen when these countrymen are most 
vulnerable, and they try to bury them in paper and doubletalk while 
they are still alive.
    My parents also taught their children to fight back. At first it 
was not easy. I wrote to several law enforcement agencies about the 
inordinate, unfair charges from my insurance company. Attorney General 
Cuomo's office was the only one that responded to me and helped me to 
fight the insurance company for proper coverage.
    I am grateful that Attorney General Cuomo's work on behalf of 
people like me has led to nationwide agreements to end the deceptive 
practices of insurance companies, and I am glad to have been a part of 
the effort.
    I am more fortunate than many others because I had funds to offset 
the costs that were unfairly passed to me by my insurance company--I 
had money left by my parents and other family members. But so many 
people are not as fortunate and do not have that ability. I cannot 
imagine the hardship that they must face.
    Since originally appearing with Attorney General Cuomo earlier this 
year to announce his reform of the out-of-network reimbursement system, 
I have received letters of support from all over the United States from 
people who have been in my situation. A woman in Louisiana wrote: ``I 
want to shout out to you go, Mary, go! Your actions have helped your 
neighbors across America.'' Another one from New York wrote: ``Your 
story and spirit are truly inspiring. It shows that one person can take 
on a big business and make a difference; you are in my thoughts and 
    These people, like me, have been fighting two battles--one against 
an illness and another against their insurance company--and are looking 
to the work of the Attorney General with great hope. They are also 
looking to you.
    The crisis in our health care system is a national problem that 
demands a national solution. The problems in the insurance industry 
that Attorney General Cuomo has exposed and the pioneering solutions he 
has achieved should guide the Congress in a much-needed reform of our 
Nation's health care system.
    As a patient, as a cancer survivor, as a person who believes in 
duty, honor, and country, and as an American, I urge you to help make 
sure that in the future, patients can focus their energies on getting 
better, not on getting their rightful insurance benefits.
    Thank you.