[Senate Hearing 111-37, Part 2]
[From the U.S. Government Publishing Office]



                                                 S. Hrg. 111-37, Part 2

                  DECEPTIVE HEALTH INSURANCE INDUSTRY
                    PRACTICES: ARE CONSUMERS GETTING
                      WHAT THEY PAID FOR?--PART II

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 31, 2009

                               __________

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





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             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
MARK BEGICH, Alaska
                    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

                              ----------                              
                                                                   Page
Hearing held on March 31, 2009...................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Pryor.......................................    14
Statement of Senator McCaskill...................................    17
Statement of Senator Klobuchar...................................    21
Statement of Senator Begich......................................    22
Statement of Senator Udall.......................................    24
Statement of Senator Warner......................................    26

                               Witnesses

Stephen J. Hemsley, President and Chief Executive Officer, 
  UnitedHealth Group.............................................     3
    Prepared statement...........................................     5
Andy Slavitt, Chief Executive Officer, Ingenix...................     6
    Prepared statement...........................................     8

                                Appendix

Response to written question submitted by Hon. Mark Pryor to 
  Stephen J. Hemsley.............................................    37

 
                  DECEPTIVE HEALTH INSURANCE INDUSTRY
                    PRACTICES: ARE CONSUMERS GETTING
                      WHAT THEY PAID FOR?--PART II

                              ----------                              


                        TUESDAY, MARCH 31, 2009

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:21 a.m. in 
room SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. The hearing will come to order.
    This is the second hearing that this Committee has had on 
so-called usual, customary, and reasonable rates, payment to 
the health insurance industry. Last week we heard from the New 
York Attorney General's Office, and I think you know those 
folks and who she was. And they conducted a year-long 
investigation into these practices. They had done that. And 
then they also heard from doctors and consumers. Today we are 
going to hear from the insurance industry.
    So let me say that I am very pleased to welcome Mr. Andy 
Slavitt, CEO of Ingenix, and Mr. Stephen Hemsley who is the CEO 
of UnitedHealth Group. There are a variety of UnitedHealths, 
but ``Group'' is sort of the overall one. Before we go any 
further, I would like to thank you for taking the time to come. 
I doubt this is something you are looking forward to, but you 
are standing-up people. I have read your testimony very 
carefully. I have some questions about it. But you are here and 
I honor you for that and respect you for that.
    Last Thursday, we heard some very strong language, and I 
think you were in Europe and could not be here. So we decided 
to bifurcate it, which has actually worked out, I think, quite 
well. The Consumers Union, Mr. Chuck Bell, had to say that the 
insurance industry reimbursed consumers for out-of-network 
Medicare, which is medical care, which is all we are talking 
about, as a rip-off. Ms. Linda Lacewell from the New York 
Attorney General's Office said the insurance industry practice 
amounted to a ``fraudulent and conflict of self-interest-ridden 
reimbursement scheme.'' In my own statement, I was utterly 
discreet and temperate, and I merely called the practices 
``deceptive.''
    Because our witnesses today are going to take issue with 
these characterizations, I want them to have every chance to 
defend themselves and explain why they do not think it was 
deceptive or whatever approach you wish to take.
    Consumers and their health insurance companies have a 
contractual relationship. It is not casual. Consumers promise 
to pay a certain premium, and in return, the insurance industry 
promises to provide a certain level of health coverage. It is 
very plain, very direct, very straight-ahead.
    So as we learned last Thursday, more than 100 million 
Americans have paid for health insurance coverage that gives 
them the option of going outside of their network, which is all 
we are talking about, outside of network. And obviously, that 
would be to get care. There could be a variety of reasons for 
that.
    So let us be very clear about this. The insurers are not 
letting their policyholders see a non-network doctor out of the 
goodness of their hearts. Consumers are paying for this option 
through higher premiums and higher cost-sharing.
    There are many reasons American consumers decide to pay the 
extra money for health insurance with an out-of-network option. 
I have been there myself. One New York consumer we heard from 
last week, Dr. Mary Jerome, actually could not come because she 
has been battling cancer for a number of years, and she just 
physically was not up to it. She was going to come but then she 
could not come. But she said that she paid this extra for out-
of-network for ``peace of mind''--those were her words--so that 
she could feel that she was getting the absolute best of health 
care possible.
    What we learned at our first hearing was that while 
consumers held up their side of the bargain, it appeared from 
their testimony that insurance did not. The insurance industry 
promised to base their out-of-network payments on what they 
call the usual, customary, and reasonable cost of medical care 
in a particular area. Thanks to the New York investigation and 
other lawsuits, we now know that the insurance companies were 
not delivering what they promised. That was the conclusion that 
we reached.
    In Erie County, New York, for example, insurance companies 
were reimbursing their policyholders for doctor visits at rates 
that were 15 to 25 percent below the local prevailing rates. A 
Federal judge recently concluded that the reasonable and 
customary data insurers used in New Jersey was 14.5 percent 
lower than the prevailing market rates. And the question, of 
course, is how does one get at these rates.
    Everywhere experts have looked at this data, they have 
found what statisticians called a ``downward skew'' in the 
numbers. For 10 years or even longer, this skewed data was used 
to stick consumers with billions of dollars that the insurance 
industry should have been paying, and if they had been paying 
would have still been making a terrific profit.
    The source of this skewed data was Mr. Slavitt's company 
Ingenix. Ingenix markets two usual and customary database 
products that every major player in the health insurance 
industry used to calculate what their reimbursement payments 
were going to be. I mean, there were not other folks out there. 
You had two sections of them, and then it sort of became one 
section. And it became what everybody used. It was sort of a 
monopoly of this wisdom of what would be fair to pay.
    Now, Ingenix is a wholly owned subsidiary of Mr. Hemsley's 
company, UnitedHealth Group. UnitedHealth not only owns 
Ingenix, but it also used the skewed Ingenix data to under-
reimburse its own policyholders. A direct connection. Total 
ownership.
    Now, I am pleased that as a result of the Attorney General 
of New York's investigation, Ingenix and UnitedHealth have 
agreed to close down their database. I have read both of your 
statements very carefully and both talked about how everything 
is going to be so much better in the future because people are 
going to have a real understanding of, et cetera, et cetera.
    But our business on this committee is about accountability. 
It is about making sure that things that have not worked right 
in the past or have not worked fairly do not happen again. And 
you cannot simply always look to the future. You have to 
sometimes prove that the past instructs why the future has to 
be different, and if you do not do it, maybe it will not be. In 
fact, it is not all fixed yet.
    So I am pleased that they have done this, and I do think 
accountability is important. And I think people deserve to know 
how these practices harmed them and who was responsible for 
them, and that is the goal of today's meeting.
    There being no Ranking Member, there being no anybody--they 
will come. We are a slow but sturdy group here. We welcome your 
statements. We will start with you, Mr. Hemsley.

STATEMENT OF STEPHEN J. HEMSLEY, PRESIDENT AND CHIEF EXECUTIVE 
                  OFFICER, UNITEDHEALTH GROUP

    Mr. Hemsley. Thank you, Chairman Rockefeller, Senator 
Hutchison, and Members of the Commerce Committee. My name is 
Steve Hemsley, and I am the President and the Chief Executive 
of UnitedHealth Group.
    Our mission at UnitedHealth Group is to help people live 
healthier lives. Our more than 80,000 employees do this every 
day for more than 70 million Americans. Our businesses touch 
broadly on the services enabling health delivery and financing.
    We appreciate the opportunity to testify before your 
committee about our out-of-network reimbursement practices and, 
most importantly, the need to provide consumers with timely and 
accurate health information so they can make more informed 
health care decisions. These topics are of critical importance 
as the debate about how to modernize our health care system and 
to contain its costs to the consumer intensifies in Washington 
and around the country.
    Mr. Chairman, as you know, we recently announced agreements 
with the New York Attorney General and the American Medical 
Association that resolved disputes over the reimbursement of 
our out-of-network services based on reasonable and customary 
rates. In determining these rates, we have long utilized 
databases of physician-billed charges licensed by Ingenix, one 
of our subsidiaries.
    There has been a good deal of commentary about our recent 
nationwide agreements. Some of it is accurate and some of it is 
not. So I am pleased with the opportunity to clarify the facts 
for the Committee.
    First, the Ingenix databases did not set the reimbursement 
rates used by any health insurer. The role of the databases was 
solely to collect data and then provide the data to a broad 
audience of users, including physicians, hospitals, 
researchers, insurers, who in turn independently used the 
information across a range of applications. Similar to other 
insurers, our subsidiary UnitedHealthcare used the data only 
when our health plan beneficiaries sought care from physicians 
outside of our network and where UCR protocols applied.
    Second, the primary database at issue in these settlements 
has been in existence for more than 35 years. During this time, 
the database has consistently performed an essential function 
to our health care economy by establishing a reasonable 
standard for the reimbursement of physicians who do not 
participate in managed-care networks. This Committee knows 
better than most that physician reimbursement based on nothing 
but the doctor's bill is simply not economically tenable for 
consumers nor sustainable for our health care system. The 
databases were created with the goal of appropriately managing 
costs and ensuring consumers are protected.
    Third, we want to make it clear that we stand behind the 
integrity of the Ingenix database. We also stand by the way in 
which our benefits businesses, UnitedHealthcare, used the data 
to make reimbursement decisions. Our recent agreement with the 
New York Attorney General did not relate to the manipulation of 
data, and we disagree with any suggestion or allegation of 
fraud. To the contrary, working with the Attorney General, we 
agreed to transfer the databases to an independent nonprofit 
entity in the hopes of increasing information transparency and 
public confidence in the quality of and access to the data that 
will be used to set future out-of-network reimbursement rates.
    Finally, the agreement with the Attorney General, which is 
national in scope, reflects our role as a leader in health care 
and our desire to strengthen the all-important trust consumers 
have in us and affirm our ongoing commitment to transparency.
    Since 2005, UnitedHealthcare's Premium Designation program 
has provided millions of our beneficiaries with the ability to 
access online costs and efficiency data for physicians and 
hospitals through myuhc.com. And for nearly 2 years, we created 
the Claim Estimator that provides physicians with online 
estimates of whether the cost of a procedure will be covered at 
that amount and what level the claim reimbursement will be.
    Our national agreement with the New York Attorney General 
reflects and builds upon our longstanding commitment to reduce 
costs and improve care through the dissemination of 
information. And the new not-for-profit entity that we agreed 
to fund with others in our industry will establish a website to 
allow consumers to search for medical services by geographic 
area, showing the prevailing charge or range of charges. In 
addition, the site will alert consumers when insurers apply 
other policies to determine out-of-network rates, including 
terms in each plan document, other reimbursement policies, co-
insurance, deductibles, et cetera.
    These are positive steps, but we believe even more can and 
should be done beyond the parameters of the agreement to 
enhance consumers' access to health information. Meaningful and 
comprehensive transparency will only be achieved when parties 
are equally accountable for the accuracy of the information and 
equal access is provided to all stakeholders. In the end, every 
consumer, each patient, must believe the costs for the care 
they receive is fair and consistent regardless of geography, 
insurance carrier, health care provider. At UnitedHealthcare we 
are eager to be part of a national discussion to modernize the 
health care system.
    And we thank you for this opportunity to address the 
Committee and will be pleased to answer your questions through 
the course of the day.
    [The prepared statement of Mr. Hemsley follows:]

        Prepared Statement of Stephen J. Hemsley, President and 
              Chief Executive Officer, UnitedHealth Group
    Chairman Rockefeller, Senator Hutchison and Members of the Commerce 
Committee, my name is Steve Hemsley and I am President and CEO of 
UnitedHealth Group. Our mission at UnitedHealth Group is to ``help 
people live healthier lives.'' We do so by providing high-quality 
health services and products to more than 70 million people each year 
in partnership with over 5,000 hospitals and 600,000 doctors and 
thousands of other care providers across the Nation. Our businesses 
touch broadly on the services enabling health delivery and financing 
and we tailor our approach to respond to the ever-changing needs of 
different clients, markets and geographies in all 50 states.
    We appreciate the opportunity to testify before your Committee 
about out-of-network reimbursement practices and, most importantly, the 
need to provide consumers with timely and accurate health information 
so they can make more informed healthcare decisions. These topics are 
of critical importance as the debate about how to modernize our health 
care system, and to contain its costs to the consumer, intensifies here 
in Washington and around the country.
    Mr. Chairman, as you know, we recently announced agreements with 
the New York Attorney General and the American Medical Association that 
resolved disputes over reimbursement of out-of-network services based 
on ``reasonable and customary'' rates. In determining these rates, we 
have long utilized databases of physician charges licensed by Ingenix, 
one of our subsidiaries. There has been a good deal of commentary about 
our recent agreements--some of it accurate, some of it not. So, I am 
pleased with the opportunity to clarify the facts for the Committee.

   First, the Ingenix databases did not set the reimbursement 
        rates used by any health insurer. The role of the databases was 
        to solely collect data and then provide the data to a broad 
        audience of users, including physicians, hospitals, researchers 
        and insurers, who in turn independently used the information 
        across a range of applications. Similar to other insurers, our 
        subsidiary UnitedHealthcare, used the data only when our health 
        plan beneficiaries sought care from physicians outside of our 
        network and UCR protocols applied.

   Second, the primary database at issue in these settlements 
        has been in existence for more than 30 years. During this time, 
        the database has performed an essential function in our health 
        care economy by setting a reasonable standard for the 
        reimbursement of physicians who do not participate in managed 
        care networks. This Committee knows better than most that 
        physician reimbursement based on nothing but the doctor's bill 
        is simply not economically tenable for consumers nor our health 
        care system. The databases were created with the goals of 
        appropriately managing costs and ensuring that consumers are 
        protected from exorbitant medical bills.

   Third, we want to make clear that we stand behind the 
        integrity of the Ingenix data. In addition, we stand by the way 
        in which our insurance business, UnitedHealthcare, used the 
        data to make reimbursement decisions. Our recent agreement with 
        the New York Attorney General did not relate to the 
        manipulation of data or other similar misconduct. To the 
        contrary, working with the Attorney General, we agreed to 
        transfer the databases to an independent, non-profit entity in 
        the hopes of increasing information transparency and public 
        confidence in the quality of and access to the data that will 
        be used to set future out-of-network reimbursement rates.

   Finally, the agreement with the Attorney General reflects 
        our role as a leader in health care and our desire to 
        strengthen the all important trust of consumers, and affirms 
        our ongoing commitment to transparency.

    Mr. Chairman, to understand the problems facing consumers and 
health plans with respect to payment for out-of-network services, one 
must first understand the critical role that physician networks perform 
in restraining health care costs. Our extensive network--one of the 
largest physician networks in the country--provides consumers with many 
options to obtain the highest quality medical care at an affordable 
cost. But our network also provides beneficiaries with another 
important benefit. It gives them visibility and certainty about the 
cost of health services before they seek care due, in large part, to 
in-network physician discounts. Unfortunately, the same is not true 
when consumers seek care out-of-network with doctors who have not 
agreed to discount his or her services.
    This scenario is obviously not good for consumers. But, it's also 
not good for our health care system--nor our broader economy--when the 
costs of a routine, identical medical procedure can vary widely within 
the same geographic region and between private and public insurance, 
such as Medicare.
    UnitedHealth Group has led the way in developing innovative 
programs that aim to provide valuable, easy-to-use health information 
to consumers and health care providers, among others. Since 2005, 
UnitedHealthcare's ``Premium Designation'' program has provided 
millions of our beneficiaries with the ability to access online cost 
and efficiency data for physicians and hospitals through myuhc.com.
    In addition, nearly 2 years ago we created the ``Claim Estimator'' 
that provides physicians with an online estimate of whether the cost of 
a procedure will be covered. at what amount and what level the claim 
reimbursement will be.
    Our agreement with the New York Attorney General reflects and 
builds upon our longstanding commitment to reduce costs and improve 
care through the dissemination of information. The new not-for-profit 
entity that we agreed to fund with others in our industry will 
establish a Website to allow consumers to search for medical services 
by geographic area showing the prevailing charge or range of charges. 
In addition, the site will alert consumers when insurers apply other 
policies to determine out-of-network rates, including terms in each 
plan document, other reimbursement policies. co-insurance and 
deductibles.
    These are positive steps, but we believe even more can, and should 
be done beyond the parameters of the agreement, to enhance consumer 
access to health information. Consumers should be able find information 
online not only about how much they will be reimbursed by their insurer 
but also the cost of a medical visit or procedure at the time care is 
delivered. Meaningful and comprehensive transparency will only be 
achieved when all parties are equally accountable for the accuracy of 
the information and equal access is provided to all stakeholders. In 
the end, every consumer--each patient--must believe the costs for the 
care they receive are fair and consistent regardless of geography, 
insurance company, or health care provider.
    At UnitedHealth Group, we are eager to be part of the national 
discussion to modernize our health care system. Thank you for this 
opportunity to address the Committee and we will be pleased to answer 
any questions that you may have.

    The Chairman. Thank you, Mr. Hemsley.
    Mr. Slavitt?

                  STATEMENT OF ANDY SLAVITT, 
                CHIEF EXECUTIVE OFFICER, INGENIX

    Mr. Slavitt. Thank you, Chairman Rockefeller and Members of 
the Committee for the invitation to be here today. I am Andy 
Slavitt. I am the CEO of Ingenix.
    I appreciate the opportunity to be here to discuss the 
challenges consumers face when they seek care from out-of-
network providers. Two of our database products, MDR and PHCS, 
are sometimes used in the out-of-network reimbursement process.
    I want to convey three points in my testimony today.
    First, Ingenix stands behind the integrity of these 
databases and the databases used in this process. We would be 
pleased to, naturally, answer any questions you have about 
that.
    Second, the agreement we reached with the New York State 
Attorney General to transfer ownership of the two database 
products to a nonprofit will increase public trust in these 
databases.
    Third, this nonprofit that we and others have funded has 
the opportunity now to shine a brighter light for consumers 
both on what physicians charge and on how they will be 
reimbursed by their insurance companies before they receive 
treatment. This is the kind of consumer advancement that 
deserves broad support.
    Advances like this are consistent with our everyday work at 
Ingenix. Since 1996, our job has been to put information to 
work for people to improve the quality and the safety of their 
care and to reduce their costs. Ingenix works for over 250,000 
clients: physician practices, academic researchers, hospitals, 
health plans, employers, State and Federal agencies, and 
pharmaceutical and biotech companies. Whenever people use 
information, our job is to make sure it is accurate, 
transparent, and understandable, that it is handled in a way 
that is private and secure, and that it can be put to use to 
improve the quality and the cost of the health care people 
receive.
    Here are some examples. We recently helped the State of 
Michigan decrease the number of children with lead poisoning 35 
percent by working with their data. We helped increase organ 
donations in this country 11 percent by creating an information 
exchange for donors. We work with the FDA to protect patients 
from potentially harmful side effects by using data to monitor 
the safety of new treatments, and we provide tools for over 100 
million Americans to help them find the best health care 
provider for their needs.
    Now, the agreement that we reached that we announced with 
the New York Attorney General concerned two database products 
which have been in use since the 1970s to provide the health 
care system with benchmarks on what physicians charge. 
Thousands of doctors license these benchmarks to assist in 
setting their fee schedules. And commercial health care payers 
license these benchmarks to help them make decisions about how 
to reimburse out-of-network benefits under what they call a 
reasonable and customary standard in their insurance policies. 
Health plans use many different methods to reimburse out-of-
network claims. Our clients use these database products on 
occasions when they prefer a market basis for reimbursement 
rather than a more static and typically lower reimbursement 
method such as Medicare.
    Ingenix's role in all of these activities have been a 
limited, but important one: to collect, organize, and keep 
current the charges that physicians bill for their services. We 
do not set reimbursement rates. Rather, like information 
companies in many industries, we gather information from 
disparate sources, we validate it, and we publish it.
    Now, under the agreement we reached with the New York State 
Attorney General, we will soon transfer the databases to an 
independent nonprofit. During the Attorney General's review, 
his office raised a concern that Ingenix's ownership of the 
databases presented an inherent conflict of interest. We do not 
want this concern to hamper the ability of the health care 
system to get access to this information.
    We would like to make clear, however, that there is an 
important difference between an inherent conflict and the 
actual practice of bias. The latter is something neither I nor 
my employees nor our parent company would ever tolerate. 
Ingenix is a business that has always prided itself on our 
reputation for integrity and innovation. Our 8,000 employees 
are scientists, doctors, and nurses, biostatisticians, 
economists, actuaries, epidemiologists. They have dedicated 
their careers to building a more transparent, higher-quality 
health care system. They are good people. I am pleased to 
represent them today.
    Ultimately, trusted, accurate data and information 
technology comprise one of the keys to modernizing the health 
care system, particularly when combined with national quality 
standards and properly aligned incentives. Ultimately, we all 
need a system where both physicians and health plans have a 
venue to disclose what they charge patients so that consumers 
can compare and weigh the different costs and coverage 
implications of their decisions. We are hopeful that removing 
concerns over these databases will prove a meaningful step 
forward in creating such a system.
    I want to close my statement by thanking the Committee for 
providing oversight on this important topic. We pledge to 
continue to focus our resources to make health care work better 
for people.
    [The prepared statement of Mr. Slavitt follows:]

  Prepared Statement of Andy Slavitt, Chief Executive Officer, Ingenix
    Thank you, Chairman Rockefeller, Ranking Member Hutchison and 
Members of the Committee for the invitation to be here today. I'm Andy 
Slavitt, the CEO of lngenix. I appreciate the opportunity to be here to 
discuss the challenges consumers face when they seek care from out- of-
network providers. Two of our database products, MDR and PHCS, are 
sometimes used in the out-of-network reimbursement process.
    I want to convey three points in my testimony today:

   First, Ingenix stands behind the integrity of the databases 
        used in this process.

   Second, the agreement we reached with the New York State 
        Attorney General to transfer ownership of the two database 
        products to a non-profit will increase the public trust in the 
        databases.

   Third, this non-profit that we and others have funded has 
        the opportunity to shine a brighter light for consumers both on 
        what physicians charge and on how they will be reimbursed by 
        their insurance companies before they receive treatment. This 
        is the kind of consumer advancement that deserves broad 
        support.

    Advances like this are consistent with our every day work at 
Ingenix. Since 1996, our job has been to put information to work for 
people to improve the quality and safety of their care and reduce their 
costs. Ingenix works for over 250,000 clients--physician practices, 
academic researchers, hospitals, health plans, employers, state and 
Federal agencies, and pharmaceutical and biotech companies. Wherever 
people use information, our job is to make sure it is accurate, 
transparent and understandable, that it is handled in a way that is 
private and secure, and that it can be put to use to improve the 
quality and cost of the health care people receive.
    Here are some examples. We recently helped the state of Michigan 
decrease the number of children with lead poisoning by 35 percent by 
working with their data; we helped increase organ donation in this 
country by 11 percent by creating an information exchange for donors; 
we work with the FDA to protect patients from potentially harmful side 
effects by using data to monitor the safety of new treatments; and we 
provide tools for over 100 million Americans to help them find the best 
health care provider for their needs.
    The agreement we announced with the New York State Attorney General 
concerned database products which have been used since the 1970s to 
provide the health care system benchmarks on what physicians charge. 
Thousands of doctors license these benchmarks to assist in setting fee 
schedules. And commercial healthcare payers license these benchmarks to 
help them make decisions about how to reimburse out-of-network benefits 
under a ``reasonable and customary'' standard in their insurance 
policies. Health plans use many different methods to reimburse out-of-
network claims. Our clients use these database products on occasions 
when they prefer a market basis for reimbursement, rather than a more 
static and typically lower reimbursement method such as Medicare.
    Ingenix's role in all of these activities has been a limited, but 
important one: to collect, organize, and keep current the charges 
physicians bill for their services. We don't set reimbursement rules; 
rather, like information companies in many industries, we gather 
information from disparate sources, validate it, and publish it.
    Under the agreement we reached with the New York State Attorney 
General, we will transfer the databases to an independent non-profit. 
During the Attorney General's review, his Office raised a concern that 
lngenix' ownership of the databases presented an inherent conflict of 
interest.
    We do not want this concern to hamper the ability of the health 
care system to get access to this information.
    We would also like to make clear that there is an important 
difference between an inherent conflict and the actual practice of 
bias; the latter is something neither I, nor my employees, nor our 
parent company would ever tolerate. Ingenix is a business that has 
always prided itself on our reputation for integrity and innovation. 
Our 8,000 employees are scientists, doctors and nurses, 
biostatisticians, economists, actuaries and epidemiologists. They have 
dedicated their careers to creating a more transparent, higher quality 
health care system.
    Trusted, accurate data and information technology comprise one of 
the keys to modernizing the health care system, particularly when 
combined with national quality standards and properly aligned 
incentives. Ultimately, we need a system where both physicians and 
health plans have a venue to disclose what they charge patients, so 
that patients can compare and weigh the different cost and coverage 
implications of their decisions. We are hopeful that removal of 
concerns over these databases will prove a meaningful step forward in 
creating such a system.
    I want to close my statement by thanking the Committee for 
providing oversight on this important topic. We pledge our assistance 
to continuing to focus our resources to make health care work better 
for people.
Exhibit 1: Methodology Comparison



    The Chairman. Thank you, Mr. Slavitt.
    Senator Pryor, did you have any comments you wanted to 
make? Senator Pryor is head of our Consumer Protection, Product 
Safety, and Insurance Subcommittee.
    Senator Pryor. I do not, Mr. Chairman, but thank you for 
having this hearing. I think it is very informative and 
helpful. Thank you.
    The Chairman. Inherent conflict of interest. I am just 
interested in the way that some conflicts of interest are 
important and others are not. I want to plumb that just a bit.
    Mr. Slavitt, you are the CEO of Ingenix. Ingenix is a 
subsidiary which is wholly owned by UnitedHealth Group. Is that 
correct?
    Mr. Slavitt. That is correct.
    The Chairman. Is it also correct that you will be basically 
out of business in about 6 months?
    Mr. Slavitt. That is not correct. May I clarify?
    The Chairman. Of course.
    Mr. Slavitt. These databases represent less than 2 percent 
of our overall revenue.
    The Chairman. Oh, no, I do not mean the other thing. I know 
you do lots of other things. But this aspect of your work.
    Mr. Slavitt. Yes. We will be transitioning these two 
databases to a not-for-profit once it has been selected.
    The Chairman. Now, was that something that you were going 
to do anyway and there was a confluence of somehow magical 
convenience between the settlement with the New York State 
Attorney General, $350 million, $50 million of that to go to 
some university or some other research organization which could 
do what I always said you were not doing?
    Mr. Slavitt. No, we were not planning on otherwise 
transferring the databases.
    The Chairman. And so why did you not?
    Mr. Slavitt. Well, I think----
    The Chairman. You knew what was going on. You knew about 
the bulk material that came in to UnitedHealth Group and how a 
lot of that was just skimmed off the top so that there would be 
a low ball.
    Mr. Slavitt. With all due respect, Mr. Chairman, I do not 
accept the premise of that question. I would be happy to, in 
whatever detail you would like, talk through the statistical 
methods that have been alleged and what, in fact, are some 
other facts that I think you ought to be aware of.
    And I understand that you have very deep concerns about the 
database and about making sure that consumers are protected 
when they go out of network. I share those concerns as well. I 
also equally care about the reputation of the work of our 
people and the integrity of the people that work for me on this 
database product. And I would like to give you an opportunity 
to have all of the facts available.
    So while I would say we learned from the Attorney General 
that we were myopic in focusing only on whether or not this 
database had integrity and whether we were, indeed, acting 
appropriately, those things I have never come to question, and 
we have been very self-reflective in this process.
    What we did learn--and you learn a lot of things going 
through processes like these, Mr. Chairman--is that to the 
outside world, this appeared to be too close for comfort. We 
are analytical types and we analyzed each accusation and each 
concern as it came in. I never once had a reason to believe 
that anything that was said was an indication of bias. Again, I 
am happy to walk through those details.
    We did--however, when we learned and were made to see from 
the Attorney General that this looked to consumers to be 
something that could not be trusted, it was important for us to 
make sure to rectify that situation.
    The Chairman. Let me continue with my question. Mr. 
Hemsley, as you know, the Attorney General of New York and 
other consumer groups had a lot of concerns about the business 
practices in the relationship with Ingenix. I think their 
concern was that Ingenix held itself out as an independent 
source of usual, customary, and reasonable health charge data 
specifically. But at the same time, Ingenix was wholly owned by 
you, which had a financial interest in generating low 
reimbursement rates. You can disagree with that, but that is 
clearly the conclusion of many.
    Now, let me give you an example. During the New York 
Attorney General's investigations, they discovered a letter 
written in 2005, which I think we are going to distribute, to a 
New York consumer by UnitedHealthcare. UnitedHealthcare is 
another division of the UnitedHealth Group. Now, the letter 
informs the consumer that UnitedHealth has determined that the 
amount of his or her claim exceeded what is called ``an 
allowable and reasonable standard.'' UnitedHealth says it 
reached this conclusion after consulting ``independent research 
across the health care industry.''
    [The information referred to follows:]
    
    
    But here is the problem, Mr. Hemsley. This so-called 
independent research came from your wholly owned subsidiary 
Ingenix. We can find no other. The people who testified said 
they had never heard of anybody being called up and asked 
``what is going on here,'' ``what do you think.''
    So, Mr. Hemsley, do you see why Attorney General Cuomo and 
others might be concerned about a conflict of interest?
    Mr. Hemsley. Chairman, I think we do, and that is why we 
responded the way that we did. This database has been in 
operation for more than 35 years.
    The Chairman. What does that prove? It could be that you 
were wrong for 35 years.
    Mr. Hemsley. It could, Mr. Chairman. But this database has 
been used as a reference database only, which means it only 
collects raw billed charges across--served by a billion claims 
per year in 500 different geographic zones and is a reference 
database only that is used and made available to other 
companies for a broad set of applications, including the 
reimbursement of out-of-network.
    The Chairman. Well, with respect----
    Mr. Hemsley. The issue of conflict had not surfaced in the 
context that the Attorney General had positioned it, and when 
that issue of conflict presented itself, we understood the 
issue with respect to consumer trust and we responded 
accordingly. That was really at the core of our discussions 
with the Attorney General from the very beginning.
    The Chairman. That is interesting because, as I see it, you 
have already acknowledged there was a conflict of interest in 
the relationship. And you have done that through your general 
counsel, UnitedHealth's general counsel, Mr. Mitch Zamoff. And 
he said on January 13, interestingly, of this year, ``We regret 
that conflict of interests were inherent in these Ingenix 
database products.'' That is what he said. I doubt that was a 
casual statement. I bet that was vetted and gone over. I bet 
that was in a formal setting.
    Now, let me ask you, Mr. Hemsley, do you regret there were 
conflicts of interest in the Ingenix database products, or do 
you simply deny what your general counsel said?
    Mr. Hemsley. No, Mr. Chairman. We have a number of regrets 
related to this. We regret we did not recognize the appearance 
of this conflict sooner. We regret that we were not more 
forceful in our broad disclosures with respect to the 
relationship of this database relative to other aspects of our 
company. And we regret that there has been any breach in terms 
of the perception of trust in terms of the consumers' 
participation in this.
    So I would also suggest we regret the fact that there is 
not greater transparency with respect to charges that go 
outside the domain of networks where there is transparency on 
costs and charges and that this plays into the broader context 
of a health care dilemma in the country around health care 
affordability and the need to modernize the system so that 
there is greater transparency and greater information. Clearly, 
we regret those and we think that the steps that have been 
taken are very positive steps forward with respect to this 
aspect of cost reimbursement.
    The Chairman. Mr. Hemsley, I am, I think, basically a 
polite person, but you are making it hard on me. I just do not 
see how there can be any other interpretation of the fact that 
Andrew Cuomo, a not insignificant or shy Attorney General, 
entered into this with all four hands and feet and did a heck 
of a job with a heck of a staff, ran down all kinds of numbers.
    And I have follow up questions, and I hope that Senator 
Pryor will forgive me for a second, and he can use 10 minutes 
too because he will have questions to ask.
    Suddenly the future is rosy and this is a wonderful thing. 
It is in both of your statements. This is going to be so much 
better. There is going to be so much transparency. It is going 
to be so much better for the out-of-network consumer. And yet, 
this was said as you were about to get hit with a $350 million 
fine. And I have to assume that that was not sort of picked out 
of the air, that there was some other statement that said, you 
know, if you are not willing to pay that--I was not there. I am 
not a lawyer. But as a citizen and as somebody who has been 
working on health care all of my life, this is very suspicious 
to me, this sudden glowing view of the future, completely 
putting aside what I consider a very sordid past.
    And I do not know why it was that you did not stop it 
because you knew what was going on.
    Mr. Hemsley. Well, Mr. Chairman, the reimbursement of out-
of-network services entails a billing related to entities that 
are not within the domain of our network. So----
    The Chairman. I missed that.
    Mr. Hemsley. That are not in the domain of our network. And 
therefore, consumers do not know, when they go outside the 
network, what those services will cost. And the usual and 
customary database--I think back to its original origins in the 
early 1970s--was built in response to establishing what costs 
are across 8,000 service codes established by the AMA so that 
there would be a reference point of actual activities in 
markets in geographic zones so there would be some point of 
reference.
    So the lack of transparency is from the portion of the 
medical community with respect to those billed charges. Then 
when a consumer uses those services, there is a reimbursement 
mechanism that is applied, a variety of them, across this base 
and they may or may not make reference to that database.
    So I would suggest that that database is an effort to 
actually bring some information to the marketplace. The dilemma 
was that it is not as easily or readily accessible.
    So the concept brought forward with the Attorney General 
was to create a place where that information could come 
forward, come forward from a neutral party. And we participate 
in that and that is where our $50 million is an investment into 
the transition of that database to an academic center and for 
the use of a much broader, much more robust transparency 
nationwide.
    The Chairman. All well and good.
    I close simply by then saying that you must, therefore, 
reject what your General Counsel said on January 13 of this 
year that he regrets that conflicts of interests were inherent 
in this Ingenix database products. You reject that.
    Mr. Hemsley. No, Chairman, I do not. The work with the 
Attorney General helped us understand the perception of the 
fact that one of our businesses was involved in the development 
of this reference database, and it was used on an arm's-length 
basis by another one of our businesses, and we understand that 
appearance of an inherent conflict, and we responded.
    The Chairman. OK. I will be back.
    Senator Pryor?

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

    Senator Pryor. Thank you, Mr. Chairman.
    Mr. Slavitt, let me start with you, if I may, and that is 
during your testimony, I did not count how many times, but I 
lost track after five or six times of you using the word 
``transparency'' in your statement. Are you saying that your 
system has been transparent?
    Mr. Slavitt. I am saying that--no, I am not saying that it 
has been transparent enough to the consumer, and I think this 
has been an awfully confusing process for the consumer. I think 
our clients, both physicians and health plans, would consider 
that a failure, a very difficult area of health care, no doubt, 
but a failure.
    I think our notion has been to try to make essentially a 
good thing happen, which is, as you well know, the health care 
industry sometimes gets criticized for not pooling its 
information together to create one version of truth or to 
combine information across a variety of sources to people. So 
our hope and our goal has been to take sources from many 
different health plans so that every health plan does not have 
its own reasonable and customary rate based on much less 
information and put it all in one place and make it available. 
And we have made it available through various products to 
doctors, to health plans, and to consumers. I think, obviously, 
it has not succeeded as well as we hope it will in the future.
    Senator Pryor. So let me ask. Your company is a wholly-
owned subsidiary of UnitedHealth Group. As I understand it, 
that is not generally made known or made clear to policyholders 
and even doctors. We had a couple of folks in last week to 
testify to us, and they said they had tried to figure out how 
these reasonable and customary charges were calculated, and 
they were basically stonewalled and could not get an answer.
    So basically today before the Committee, you are telling us 
that your operation has not been transparent and has not worked 
in a way that it should for consumers. Is that fair to say?
    Mr. Slavitt. Senator, what I am saying is that we go 
through a very thorough process of ensuring that the data we 
present to people is as accurate as possible. We take in a lot 
of information. We go through a very thorough verification 
process, which I would be glad to outline to you. We publish 
information much in the same way a company like A.C. Nielsen or 
companies in other industries publish information. We certify 
the information that comes in. We run tests. We ensure that 
nothing happens in the course of that process that are biased, 
and we turn that information over to various people to use it. 
It includes health plans, including one of our sister 
companies. It includes other health plans. It includes 
physicians. And what I am testifying today is all of that was 
done properly.
    Senator Pryor. Well, let me ask this. There is some 
disclaimer language I want to focus on, and it is a document 
that you have, I think the Committee has. You may have it in 
front of you, but if not, we will make sure you have it. 
Basically it says, ``The database is provided for informational 
purposes only and Ingenix disclaims any endorsement, approval, 
or recommendation of data in the database.'' Now, to me, that 
sounds like you are not standing behind the data in your 
database. And to me, it sounds like you are not standing by the 
integrity of your own database, although in your testimony a 
few minutes ago, you said you are.
    [The information referred to follows:]
    
    
    Mr. Slavitt. Sure.
    Senator Pryor. So explain that for me.
    Mr. Slavitt. No, I understand why you are asking the 
question.
    Our clients, many, many health plans, write policies and 
their own policy language and refer to our database in that 
policy language. We are explicit about what the database is and 
what it is not. However, we cannot warrant that if a health 
plan says something about our database that is not, in fact, 
true, that therefore they are using it in a reasonable and 
customary way.
    What we can warrant is that our database that lists, for 
example, what a doctor visit costs in a certain location for a 
certain service for a certain price is, in fact, derived the 
way we indicate that it is derived.
    Senator Pryor. So in other words, just a minute ago in 
answering my question, you said that you publish information 
like A.C. Nielsen and others, and you go through this rigorous 
testing and this examination and this process that you go 
through, and you are like other database or information 
providers. But that is not true because A.C. Nielsen and others 
actually can get inside their numbers. They can verify the 
accuracy of the numbers. But you did not at Ingenix. Is that 
fair?
    Mr. Slavitt. No. With all due respect, to the contrary. We 
run a very thorough process. And I think on Thursday in this 
room, you heard some facts, and I think there are other facts 
that would be useful to hear. For example, I think you heard 
that high values are removed from the database, and the other 
half of that statement is that about 5 percent on average of 
the data that comes into this billion-record database is 
excluded as being outliers.
    So what is an outlier? An outlier is a number that comes in 
that does not make any sense. In plain terms, if a bill for a 
certain service is $75 week in, week out, year in, year out 
from a doctor, and you get a record that comes in at .075 or 
$7,500 or $75,000, which happens, naturally we exclude it. And 
as a matter of fact--and this is important--we exclude four 
times as many low values as we do high values.
    Why that other part of the sentence has never been talked 
about I am not exactly sure. But criticism after criticism has 
not entirely told the entire story about these methods and 
these processes. The processes that we use we always go back 
and test to see whether or not what we did created a bias or a 
downward skew, to use your expression, of the information, and 
it does not.
    Senator Pryor. Mr. Hemsley, let me ask. And I am really out 
of time here, but with the Chairman's indulgence, let me ask 
you. You mentioned in your opening statement that the database 
did not set rates.
    Mr. Hemsley. Yes, sir.
    Senator Pryor. Well, who did set the rate then?
    Mr. Hemsley. The individual user, if they are using it for 
reimbursement purposes----
    Senator Pryor. So in other words----
    Mr. Hemsley.--the database itself----
    Senator Pryor.--UnitedHealthcare would set the rate.
    Mr. Hemsley. Whatever insurer would use it as a point of 
reference. It is a static database that collects billed charges 
from across the country with about 100 contributors to it, and 
it merely takes those data points in and sorts them by service 
code, AMA service code, 8,000 service codes, along 500 
geographic areas, and then presents it in terms of percentile 
terms as a reference point.
    Senator Pryor. So it is up to the individual insurance 
company to set the rate.
    Mr. Hemsley. Yes, sir.
    Senator Pryor. And you also mentioned that the primary 
database in question has been in existence for 35 years, but I 
want not to parse words with you but when you say the primary 
database, the truth is it has changed a lot in the last 35 
years. Is there not a different ownership structure with this 
database than there used to be?
    Mr. Hemsley. The original database was created and put in a 
trade association of health benefit purveyors and operated 
until that trade association merged with another in the late 
1990s, at which point in time we took responsibility for that 
database and have operated it since.
    Senator Pryor. And would you agree with me that by virtue 
of the change of ownership and the change in the structure of 
the database, then it does open the door for this inherent 
conflict of interest that we have talked about and also may add 
to the lack of transparency with the database?
    Mr. Hemsley. As I think we said before, it does create the 
appearance of a conflict, and that is why we responded as we 
did with the Attorney General.
    Your other question was?
    Senator Pryor. Does it--this conflict of interest and also 
this lack of transparency.
    Mr. Hemsley. The use of the reimbursement and the reference 
to the database, et cetera is set forth in plan language, plan 
documentation, et cetera, all reviewed by regulators and passed 
by regulators. I do suggest, as I had responded to the 
Chairman, that we wish we had done more with respect to being 
more aggressive in terms of the relationship between the 
businesses, yes.
    Senator Pryor. In other words--I am sorry, Mr. Chairman--if 
I am John Q. Policyholder with UnitedHealthcare and I have a 
policy with UnitedHealthcare, and when I get my insurance and 
it says, you know, something to the effect of if it is an in-
network service, United pays for 90 percent, but if it is out-
of-network you pay for 50 percent, the truth is that in most 
cases you are not paying 50 percent. You are paying 48 percent, 
45 percent, 40 percent, 35 percent, something like that, but 
you are paying less than 50 percent because of the way this 
deal was structured.
    Mr. Hemsley. No, Senator, I would not agree with that. We 
generally pay much higher, and I will use the case of Dr. 
Jerome, the witness. Ultimately, this was a self-funded case, 
so it was sponsored by her employer. We paid 86 cents on the 
dollar for the services she received at Sloan-Kettering, very 
costly, but also a very high-quality institution. 86 cents on 
the dollar.
    Senator Pryor. Mr. Chairman, thank you.
    The Chairman. Thank you.
    Senator McCaskill?

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. I am a little confused. You all settled 
a lawsuit and a complaint--an investigation by the Attorney 
General's Office for hundreds and hundreds and hundreds of 
millions of dollars. I think between the agreement with Cuomo 
and the agreement in New Jersey, are we not talking about a 
half a billion dollars that you all are paying?
    Mr. Hemsley. Yes, Senator.
    Senator McCaskill. And Mr. Slavitt, you are maintaining 
there is absolutely nothing wrong with this data?
    Mr. Slavitt. Yes, Senator.
    Senator McCaskill. Do your shareholders know that you have 
settled this amount for a half a billion dollars when you have 
done nothing wrong?
    Mr. Slavitt. Maybe I could put a context to that. The 
discussions with the Attorney General have been around the 
issue of conflict and a better positioning of that database, 
which really is essential for the health care system, and to 
position that database in a center that would have no business 
interests associated at all. And to help transition that and to 
deal with the root issue of lack of transparency on out-of-
network bills and charges from the provider community and the 
solution with the Attorney General and the investment 
associated with that to bring that capability to bear 
nationwide as an industry utility is what our discussions with 
the Attorney General have been about.
    Our resolution with the American Medical Association really 
relates to a conflict that has been in place with them for 
nearly a decade, and we are interested in cultivating a much 
more constructive relationship with the medical community at 
large. About 85 percent of the health care community, about 
5,000 hospitals, 6,000 physicians, and so forth, are part of 
our network infrastructure. We procure about $100 billion in 
health care services a year through that, and we are not 
interested in having a contentious relationship with that very 
vital aspect of the health care----
    Senator McCaskill. I guess my concern, Mr. Hemsley and Mr. 
Slavitt, is that I anticipated, after the hearing last week, 
that your testimony today would be ``we did not do this 
right,'' not just it did not look good, but ``we did not do it 
right.'' Now, you are admitting, Mr. Hemsley, that it did not 
look good. But what I am not hearing is any acknowledgement 
that you did not do it right.
    Let me ask you, Mr. Slavitt. If you were so busy throwing 
out the low price outliers, then why were you able to market 
this information to insurance companies by saying for every 
dollar you spend on our data, you will save $16? How is it that 
if this data is so accurate that you would advertise that by 
using this data, you are going to save $16 for every dollar you 
spend, if you were so busy throwing out the low outliers?
    Mr. Slavitt. Senator, we market this data to physicians and 
health plans and researchers and governments. The data and the 
analytical processes are overseen by Ph.D.s who are people that 
have very deep ethical training, very deep analytical 
training----
    Senator McCaskill. I am not asking about the training of 
the people who did it. I am asking you about the marketing of 
for every dollar you spend, you are going to save $16. If this 
is just accurate data, how can you market that they would save 
that kind of money over what they had been paying?
    Mr. Slavitt. First of all, Senator, I need to see the 
document. I am not familiar with----
    Senator McCaskill. It is in the complaint that you settled. 
It is in the complaint. It is on page 32 of the complaint, 130. 
``In marketing PHCS, UnitedHealthcare promised and continues to 
promise that PHCS users will achieve substantial cost savings, 
including a 16-to-1 return on investment.''
    Mr. Slavitt. Right. So, Senator, if I may?
    Senator McCaskill. Yes.
    Mr. Slavitt. For a health plan to decide that they would 
like to pay less or would like our rates to be lower, the 
easiest thing in the world for them to do is to say I do not 
want to pay at the 80th percentile. I want to pay at the 70th 
percentile. The thing that I find hard to believe is that they 
would come to us and suggest that we should cook the data.
    Now, promising our clients who buy our software, if they 
use data and they use data well, that they will be able to run 
their business better and operate better, whether it is on the 
physician side or on the health plan side, is not something 
that I am embarrassed about.
    Senator McCaskill. Well, I guess the point is that your 
marketing was we are going to help you not pay.
    Mr. Slavitt. No. Excuse me. I am sorry. I did not mean to 
interrupt you.
    Senator McCaskill. Well, that is certainly what it--if I 
were an insurance company and I got a flyer from your company 
and it says for every dollar you spend for our data, I am going 
to save you $16, that means I am going to be paying out less 
money in claims.
    Mr. Slavitt. I am sorry. I respectfully disagree with the 
statement that that means that we are going to have them not 
pay. What our clients want to do----
    Senator McCaskill. Pay less.
    Mr. Slavitt. What our clients want to do is pay accurately, 
and when they license our database, what they are saying they 
want to do is pay at something that approximates a market rate 
as opposed to what they could do, which is pay at a Medicare 
rate or create a schedule of their own. They actually pay 
something like 30 percent more when they use our product than 
if they were to, in fact, use something closer to their in-
network rate or double what they would if they used the 
Medicare rate.
    So the links that you are making I do not think are--
appropriately imply that we are finding ways for them to 
inappropriately pay less, with all due respect.
    Senator McCaskill. Well, I think the problem here is that 
there appears to be a disconnect in terms of owning some 
responsibility for what clearly the company decided was wrong. 
I mean, you cannot tell me in this day and age with the kind of 
shareholder scrutiny there is that any company would already 
have agreed to pay out a half a billion dollars in settlement 
for something that just had an appearance of a problem. Usually 
cases get settled because you are afraid you are going to get 
nailed if they go to court, and they do not get settled 
otherwise.
    And it seems to me that--I am just disappointed. I think 
this is why the health care reform--you know, there is such a 
lack of confidence in so many institutions right now, Congress 
being among them, but certainly health insurance is one of the 
places where most people that I work for think they are getting 
a raw deal.
    And I am just disappointed that there is not more of an 
acknowledgement today that the way you all did this was wrong, 
that the information and the way you disseminated it was not 
done correctly, and that consumers were getting the short end 
of the stick. If you had come here today and said those things, 
I would feel much better going forward. As it is, I think we 
need to be vigilant and stay on you like white on rice.
    Mr. Hemsley. Well, Senator, we are here because we are 
interested in consumer confidence. We are interested in making 
sure that all of this is understood. We made a business 
decision and we made a decision about the transference of the 
database to a neutral site and to invest in a greater 
transparency that would benefit the health care domain in total 
and consumers and physicians alike. We also made a business 
decision to resolve a conflict with the medical community at 
large, which is very important to our business, and that 
conflict had been in place for some time.
    Once we had made a decision to transfer the database, we 
were also interested in resolving the conflict with the medical 
community. It is very important that we maintain a relationship 
with them. We procure a great number of services through them. 
In the era that we are moving forward, in terms of health 
reform, I think it is more important than ever to have an 
appropriate and smooth relationship with the health community, 
and we made a decision that to resolve this conflict, which had 
been longstanding, was a very good business decision in that 
context.
    Senator McCaskill. And I appreciate it, Mr. Hemsley, and I 
know you are trying to do what is best for your company.
    One final question, Mr. Chairman. Are you saying that the 
Attorney General's inquiry into your business was, in your 
mind, a separate and distinct issue from the lawsuit that had 
been ongoing for 7 or 8 years before the Attorney General ever 
opened a book on you?
    Mr. Hemsley. I am suggesting that the Attorney General 
really focused on the issue of the positioning of the database 
and the appearance of conflict with that reference database and 
our activities in other aspects of our business in health 
benefits. And his interest was in resolving that, and that is 
what our solution with the Attorney General----
    Senator McCaskill. But were the issues not the same, Mr. 
Hemsley, in the lawsuit and the information that the Attorney 
General uncovered? Were the issues not the same?
    Mr. Hemsley. No, Senator. I think the issue in the 
litigation was about the validity of the database, and we stand 
behind the validity of the database and the appropriate support 
of that database.
    Senator McCaskill. So the lawsuit was about the validity of 
the database which you stand by, and the Attorney General's 
inquiry was on conflict of interest. So you decided to settle 
the conflict of interest and, in turn, just decided to settle 
the validity of the database lawsuit at the same time? And 
these are not related?
    Mr. Hemsley. To put, in essence, the entire matter and to 
move forward in a much more constructive way, absolutely.
    Senator McCaskill. Thank you.
    Mr. Slavitt. May I?
    Senator McCaskill. It is up to the Chairman.
    The Chairman. Please.
    Mr. Slavitt. Senator, of course, there is no denying that 
Mr. Hemsley's company owns my company and another company that 
uses our product. And it is clear that we were myopic and being 
perhaps so analytical about defending our integrity that we 
missed the bigger picture.
    But we would not have signed an agreement that contained 
accusations of fraud in it because we simply do not agree with 
it, and we did not sign an agreement that had fraud in it.
    Senator McCaskill. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator McCaskill.
    Senator Warner?
    Senator Warner. Mr. Chairman, since I missed the last 
hearing, I think I am going to pass at this point and listen a 
little bit more.
    The Chairman. OK.
    Then Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman. I 
thank both of you for being here.
    Just to sort of set the stage here, Mr. Hemsley, there was 
a lawsuit or two legal actions. They were settled, as Senator 
McCaskill pointed out, for half a billion dollars. But the key 
part of this, just from my perspective, is part of this with 
the Attorney General of New York was that there was $50 million 
devoted to a website to move forward to post and figure out a 
way to accurately depict these rates, out-of-network rates.
    And just to clarify here the record, your company settled, 
but there are other companies that have not settled who are 
being sued. Is this correct?
    Mr. Hemsley. That is correct. The context of it was the 
development of a concept that we had actually brought forward 
with the Attorney General about the establishment of a more 
universal site so that charges could be transparent when they 
were in an out-of-network setting and to use the database, 
which is by far the most robust database in the industry, as a 
source for this. We adopted that on a national basis for our 
business, and I believe the other carriers are in the process 
of considering that right now.
    Senator Klobuchar. So will other carriers, even if they 
have not settled--will their customers be able to access this? 
It is going to be a public database?
    Mr. Hemsley. It will be a public database.
    Senator Klobuchar. OK. And what other changes do you think 
would make it easier for patients to understand the true costs? 
You know, retail clinics often post prices in their office, 
things like that. As we move forward here, when people are 
looking at out-of-network costs--and I can tell you I am 
devoted trying to get people covered as much as possible, but 
if they want to go out-of-network, what are some other ways 
they can assess the cost?
    Mr. Hemsley. For our network and the vast majority--I mean, 
we are talking about a very small percentage of services that 
are really rendered out of network. So the vast majority of 
services that are rendered in-network we have information about 
the service itself and about the physicians and so forth that 
assess and report on quality on their service efficiency and 
also do this in the context of natural groupings of services 
because the services themselves are very technical in terms of 
AMA service codes, and so they are then grouped into more 
natural, plain English. And that is what we use and we would 
use that as a model I think. I think it is the most advanced of 
its kind across the industry. We would use that as a model for 
this site.
    Senator Klobuchar. And I will say I have some statistics. 
We will maybe ask you the questions in writing about how 
patients can do better bargaining when they have the 
information, those kinds of things.
    But I have to tell you I just do not think this is the way 
we want to go. I do not think you do either in terms of having 
individual patients trying to negotiate rates. There is no way 
the patients win in this circumstance. And to me, the answer is 
to, of course, leverage patients by having them together in a 
major group to take on the costs.
    And I just want to move to another area that Mr. Slavitt 
had raised. Where I look at where can we really save money in 
the system--and I know the President is devoted to this as 
well, and that is this issue of geographic variation in the 
Medicare reimbursements. Mayo Clinic just announced that they 
lost $765 million last year because of the Medicare 
reimbursements. Yet, they have the highest quality and lowest 
cost of health care around. In fact, a Dartmouth study came 
out--I mentioned this last week--that showed if every hospital 
in the country followed their protocol, we would save $500 
billion every 4 years in taxpayer money on Medicare.
    And so could you comment as we look to this health care 
reform about how we can account better for these geographic 
differences where some areas of the country are incredibly 
inefficient in how they deliver health care? Miami, Florida, 
$15,000 for the same package of Medicare services that is 
$7,000 in the Twin Cities. That is a fact. So how can we fix 
this where you have these wildly disparate health systems? And 
to me, that is going to be a lot of the answer of how we save 
costs in this area, Mr. Hemsley.
    Mr. Hemsley. Yes, Senator. I think what you reference to--
and our company has been supportive of that as well--is that in 
a major area, if you think about reform broadly, you can think 
about it in terms of four zones, in terms of health policy, 
appropriate use of resources, appropriate alignment of the 
health care economy, and citizen responsibility for health.
    In the area of appropriate resource use, there is 
significant variation of care. It is well established. There 
are evidence-based medicine protocols. They are generally 
established by the specialty societies. We use those protocols 
as a basis for setting the evaluation framework for our premium 
networks, and we believe that if the evidence-based medicine 
was consistently complied with across the spectrum of care, 
that you would get meaningfully better, more efficient use of 
resources. And that is very much what our business is engaged 
in.
    Senator Klobuchar. Thank you very much. I just want to 
correct the record. It is $50 billion--$50 billion--every 4 
years that we can save. So thank you.
    Mr. Slavitt, did you want to add anything on the Medicare 
issue?
    Mr. Slavitt. No, I think Mr. Hemsley covered it.
    Senator Klobuchar. OK. Thank you very much.
    The Chairman. Thank you, Senator.
    Senator Begich?

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you, Mr. Chairman.
    I appreciate you all being here today. I apologize I missed 
the first portion of your presentation, but just remind me. 
Maybe, Mr. Hemsley, you could do this, or either one of you.
    In the settlement that was done, the amount of money in the 
settlement--besides setting up the nonprofit and setting up the 
new system, what are the chunks of the money? How does that go? 
Just so I kind of get the basis----
    Mr. Hemsley. In developing the recommendation with the 
Attorney General and recognizing that there would be costs to 
establish a transparent, robust database for these purposes, we 
have indicated that we would make investments over a period of 
time--I forget the period--of $50 million and anticipated that 
others in the insurance domain would make investments of that. 
So that is what the $50 million is about.
    Senator Begich. To set up the system.
    Mr. Hemsley. Transfer the database, which is an industry--
--
    Senator Begich. Owned and operated.
    Mr. Hemsley.--essential service.
    Senator Begich. I understand.
    Mr. Hemsley. And to make sure that service is transferred 
to a new setting, fully operational, and then also to get more 
proactive in terms of developing the kinds of transparencies 
that everybody in the health care community is looking for, 
whether that be portals, whatever venues may come forward. So 
those would be investments for those purposes.
    Senator Begich. And then in that, was there--I could not 
ask this to the last week's panel, but maybe you could answer 
this. I ran out of time last week. But are there operating 
dollars to continue to flow to operate that facility? In other 
words, I understand the setup costs and so forth, but what 
ensures the continual operation for the staffing and the data 
collection and all that it takes to keep that going?
    Mr. Hemsley. The database itself should be self-sustaining 
so long as it is used broadly in the industry, and we have 
committed, as it pertains to reference for usual and customary 
rate purposes, that we would continue to use it. So it should 
be a sustaining entity.
    Senator Begich. But the nonprofit has to operate--how will 
the nonprofit fund itself and continue to operate?
    Mr. Hemsley. License fees----
    Senator Begich. To the insurers who then would pay a fee to 
put the data in there and collect it and manage it.
    Mr. Hemsley. Yes, sir.
    Senator Begich. OK. That is the question I had.
    The second one is do you think--I asked this of last week's 
panel. I mean, the settlement was kind of regional. You know, I 
come from Alaska. So I think almost three-quarters of our 
business is Blue Cross. Probably Aetna is our secondary. Do you 
think this settlement should be codified into the health care 
reform? When I say settlement, I mean the elements of this 
independent type of nonprofit that collects the data for the 
whole country from Alaska to Florida and everywhere in between.
    Mr. Hemsley. We are approaching it on a national basis. We 
will do this on a national basis.
    Senator Begich. But do you think it should be part of the 
health care reform in the sense of codifying it to make sure 
that it does not have to be a settlement issue in the future if 
there are other issues that come up down the road? Maybe the 
nonprofit starts not doing what they should be doing? Should it 
be part of the health care reform, or do you think satisfies 
it? Do you think all the insurance companies are going to 
participate?
    Mr. Hemsley. I cannot speak for the other insurance 
companies. I would broadly suggest that I think that standards 
applied in the health care community would be a positive thing 
in a number of areas. And I think----
    Senator Begich. This specifically. I am going to kind of 
drill down here.
    Mr. Hemsley. I believe that this database is the standard 
in the industry, so I would agree with that.
    Senator Begich. OK. Same thing? Would you agree with that, 
or additional comments?
    Mr. Slavitt. I have opinions probably on a lot of things, 
including reform-related. I do not have an opinion as to 
whether this should be codified in reform.
    I do think that the Committee is right to focus on ways to 
encourage both health plans and physicians to disclose their 
charges in advance to consumers in an easy way. Mr. Hemsley 
mentioned bundling services, which is an even more friendly way 
to do that. But the more that--and I think most of my clients, 
who are physicians and health plans, would agree with that, 
that more transparency will be better. We will have fewer 
situations like the ones that frustrate the Committee and 
certainly us as well.
    Senator Begich. Let me end with just one last question 
because my time is about out, and maybe this could be data 
either one of you could get. But I would be curious, over the 
last--you know, maybe to the insurance company, but 
specifically to both of you--over the last half a dozen years, 
do you have some data that can show me your consumer 
complaints, as well as your physician complaints and/or 
organization complaints, and kind of what volume and what types 
of complaints that have come to you in regards to the charges 
and so forth? Is that something that either one of you or both 
of you could provide?
    Mr. Slavitt. We will get with our team and we will get 
something out.
    Senator Begich. OK. Both? Thank you very much. My staff 
will follow up with you. Thank you.
    The Chairman. Thank you, Senator.
    Senator Udall?

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

    Senator Udall. Thank you, Chairman Rockefeller. Once again, 
I appreciate you bringing us back to this important issue.
    The lawsuit and the settlement that resulted hurt consumers 
in a significant way. And my first question is boring in on New 
Mexico, but I think this is true for the rest of the country. I 
mean, I am wondering are my New Mexico residents--have they 
been as under-reimbursed as consumers in New York, as was 
proven out in these hearings that we have had? That is the 
first question. Do you have any, Mr. Hemsley, on----
    Mr. Hemsley. Well, as I said, the context of our resolution 
with the American Medical Association and the medical community 
at large is to resolve the conflict between our entities that 
has been longstanding. It was important to us that if the 
conflict resolution involved funds, that those funds be used to 
return to both consumers and care providers and to establish a 
fair basis to do that. And our resolution is nationwide in 
context. It covers all States. It covers all consumers, all 
providers.
    Senator Udall. But you are talking about going forward.
    Mr. Hemsley. No, sir. This is----
    Senator Udall. You are going to make whole the consumers 
from the past. You are going to make them whole. Is that what 
you are telling us?
    Mr. Hemsley. I do not know what process will be used, but 
there will be an effort to distribute these funds to consumers 
and providers on a national basis.
    Senator Udall. Well, that is fine, but do you think there 
is enough in the settlement to make everyone whole that is out 
there?
    Mr. Hemsley. The settlement is a very significant 
settlement, as Dr. Nielsen indicated last week, supported by 
the AMA, and very, very significant in its scope.
    Senator Udall. Yes, well, it is but it basically dealt with 
the State of New York, did it not?
    Mr. Hemsley. No, no. It was nationwide.
    Senator Udall. This is nationwide. And so you believe that 
consumers in Minnesota, New Mexico, Virginia are going to 
benefit from this and be made whole as a result of this 
settlement.
    Mr. Hemsley. It is my understanding that these proceeds 
will be used and distributed----
    Senator Udall. Well, I know they are going to be 
distributed. My point is that in many of these lawsuits where 
you have a big settlement like this, the funds that go into the 
overall settlement fund to pay out are many times less than the 
consumers were hurt.
    So I am asking you, first of all, from your view as you 
know it as to what happened on a nationwide basis, do you 
believe the funds are adequate and do you believe consumers 
across the Nation are going to be made whole in this process?
    Mr. Hemsley. I cannot respond to that from the perspective 
that we do not believe that there are any issues with the 
integrity of the database as a reference database. We do not 
know how others may have used that database for reimbursement 
purposes.
    Our solution with the American Medical Association was to 
resolve a conflict with them, and I believe that those proceeds 
were very significant with respect to a response to that and 
has been embraced by the American Medical Association in that 
context. Yes.
    Senator Udall. Well, I just hope that this committee is 
going to continue to look into this and continue to follow up 
and to bore in on what has happened in all of our states in 
this particular circumstance and find out if in reality, 
consumers are going to be made whole. My sense is that probably 
if you had a state-by-state basis, that that would not be the 
case. But we appreciate having you here today, and I hope we 
stay involved in this and make sure that the settlement is 
going to make our consumers whole.
    Thank you, Chairman Rockefeller.
    The Chairman. Count on that.
    Senator Warner?

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman, and again, I 
appreciate the chance to hear some of my colleagues since I 
missed the setup for this last week.
    What I have believed for some time is that--and this case I 
think reflects this--as we move toward getting better data and 
whether actions from the stimulus program, in terms of health 
care IT or the over $1 billion finally in terms of comparative 
effectiveness research, we have seen here in this circumstance 
that there is data out there, maybe not always used to the 
benefit of the consumers.
    This is an area that has not been a problem because of lack 
of technology. We have had the technology to be able to do this 
for more than a decade. I believe it has been an issue of a 
lack of will and many all across the health care system may not 
want to, one, share this data or, two, be willing to--in 
effect, fear that more transparency might curtail people's 
ability to practice medicine in an old-fashioned way.
    And I guess what I would like to hear from the witnesses 
is--I heard Mr. Hemsley say we need national standards. I would 
agree with that. I think that is going to have to be defined at 
a national basis and not kind of bottom-up-driven. If we wait 
for the market to arrive at these national standards in terms 
of how we share this data or create these health care IT 
standards, then we will be waiting decades more.
    I guess I would--in light of your experience and rightfully 
or wrongfully being called out for this and a half a billion 
dollar settlement, how would you see the ability to create, 
one, those national standards?
    Two, how would--following up on Senator Klobuchar's 
comments about the questions about differential results based 
upon geographic disparity in this country, how can we best use 
the over $1 billion we have got in comparative effectiveness 
research to make sure that we can drive down on that type of 
disparity, and not just geographic, but the host of others?
    And three, I personally believe we need to look at 
disparity in reimbursement rates based upon whether--you know, 
if a doc does not want to change and meet these standards or a 
provider does not want to meet these national standards, maybe 
we reimburse him at 95 cents on the dollar versus if they do 
meet these new national standards, $1.03.
    There was--I am sure you saw, Mr. Chairman--just this week 
an indication out that we have got such a long way to go that 
only 9 percent of our hospitals at this point in this country 
have any kind of major electronic medical records system, 
comprehensive.
    So having perhaps not efficiently or effectively or 
appropriately used the data that you have been collecting and 
being called to task on that, what guidance would you give us, 
gentlemen, in terms of, one, how we use this effectiveness 
research dollars out of the stimulus; two, how we set these 
national standards in terms of health care IT; and three, how 
do we make sure that this data, beyond being forced through 
adjudication, gets out into the marketplace in a better way?
    Mr. Hemsley. I will frame a few themes, and then maybe 
Andy, who is more facile with the details.
    Our businesses, as we introduced this morning--we serve 70 
million Americans. We are connected to about 85 percent of the 
care delivery community in this country. And our business is 
all about the use of information and technology expertise in 
care management, national networks, et cetera to really enhance 
care and to make it more affordable and accessible for 
consumers. And we believe we do that in the context of our 
business, and I think our many decades of success and so forth 
offer a model in terms of how information can be used. You are 
correct. There is information in the marketplace. We use it 
across our business in a standard way.
    I think the multiple parties across the health care 
community can be brought together to use standards. Evidence-
based medicine is not a new concept. It is well established in 
the community. Specialty groups have optimal care protocols, et 
cetera. The work done at Dartmouth suggests that adherence to 
evidence-based medicine and compensating the care community for 
adherence to evidence-based medicine is well established and we 
think very positive.
    And there are meaningful disparities in the marketplace. I 
will just use one example. In the State of New York, a regular 
delivery would have billed charges of about $6,000. Those 
charges in our experience have been submitted as high as 
$40,000. And Medicare pays $1,917. And those are very 
significant disparities across the economics of health care, 
all in one market, and those need to be dealt with as well.
    Senator Warner. Let me just finish. My understanding, at 
least, is that while you have some amount of established 
protocols within certain specialties, that the evolution of or 
the growth of evidence-based medicine across a variety of 
specialties and having those protocols adopted as a basis for 
fixed reimbursement rates really has not come to pass yet.
    Mr. Hemsley. We do have premium networks where we do have 
pay-for-performance and have identified those practices that 
adhere to evidence-based medicine on a consistent basis and we 
do compensate them on a premium for that basis.
    Mr. Slavitt. Senator, our Nation's commitment right now, 
led by the President and this Congress, to help information 
technology has a lot of promise. It is very exciting and the 
opportunity to close health disparities across this country if 
we put in place, I think, the three components that are in the 
stimulus properly. You know, an EMR in every pot or an access 
point for every physician so that people can access the best 
information that is out there, health information exchanges or 
the ability on a national basis to get the information about 
any patient to a doctor at the right time, and then as you 
referenced, Senator, comparative effectiveness research or a 
commitment to pursuing and finding treatments that are most 
effective at treating people.
    I would offer you that there are three things that I would 
encourage us to do as a nation.
    One is aggregate data and do everything we can to encourage 
people to aggregate data in a way that is safe and secure so it 
stays where it needs to stay until called upon. That is 
possible, given today's technologies.
    Two, use very, very low-cost means of distributing 
technology, web-based technology, to doctors that is instantly 
updatable so that doctors can become customers. Doctors do not 
feel like customers of EMRs, which is why they do not typically 
use them. So doctors have to get low-cost EMRs with a lot of 
competing vendors that is networked together and can be 
instantly updatable.
    And then finally, there are about 30 conditions that we 
believe evidence-based medicine standards have broad agreement. 
Those should be adopted nationally, and then we should be 
continuing to research the rest of it. We should have our 
scientists, our physicians, and others in this country that can 
pursue that knowledge base, update that as we pursue it.
    Senator Warner. Well, a piece of that, I believe, as well--
and I guess this goes into how we get this connection between 
the various EMRs--you have got to have an interoperability. 
Again, I would encourage you, in light of some of the review 
and some of the settlements you have entered into recently, the 
more you can be advocates across that interoperability and 
recognize that if there is not this willingness to meet this 
national standard, if there is not this willingness to share 
some of your proprietary databases, one, it is going to end up 
being forced.
    Two, at least as a former Governor, hearing numbers of 
hospitals and providers say they understood the importance of 
EMR and health care IT, but they had just invested in a legacy 
system. And candidly, my sympathy for investments in legacy 
systems at some point, if we continue to have that as an 
excuse, we are never going to get to a universal national, 
truly interoperable system in terms of health care IT. And I 
would again encourage you to be more proactive in sharing and 
leading this area.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warner.
    Mr. Hemsley, could you pull your microphone a little bit 
closer? Good. It is important to hear you. Mr. Slavitt is very 
audible. You are a little bit less audible.
    I am going to continue on this because I love talking about 
the future. But I was one who voted to go to war in Iraq. I did 
not actually. I voted to give the President authority to go to 
the United Nations, but it turned out to be different. I went 
on television, because I have been on the Intelligence 
Committee for a long, long time and still am, as we did our 
weapons of mass destruction studies and discovered that the 
whole thing was a fraud and there was no connection between any 
weapons that the President was using to speak to the Congress 
to influence American public opinion, and that there was no 
relationship between Al-Qaeda and Iraq with respect to the 9/11 
tragedy.
    So what we did in the Intelligence Committee--the natural 
instinct is always to look forward to the future. This is 
particularly advantageous for you too because it is where you 
can be most comfortable. I do not, frankly, know how you sleep 
at night based upon all these previous years. But nevertheless, 
in order to not repeat what I think you folks have done, 
although you are very smooth and your testimony is very glib, 
you are contradicting yourselves in many places and that does 
not go unnoticed by this committee or its investigators. We 
harbor a little bit of attention on the past to make sure that 
this never happens again.
    Mr. Slavitt, this is rather crudely put, but my great 
grandfather would have really taken you in as an immediate 
partner in the Standard Oil Company. I mean, he would have 
really liked the way you do business or the way that you do 
business in hiring him to collect all of this information which 
was used generally by the insurance community.
    Now, Mr. Slavitt, in your testimony, you say that Ingenix's 
role was to gather data about physicians' charges, validate the 
information that you collected, and then publish it. Insurance 
companies like UnitedHealth, Aetna, CIGNA, et cetera would then 
use your products to set their out-of-network reimbursement 
rates. That is correct?
    Mr. Slavitt. That is correct, Mr. Chairman.
    The Chairman. My understanding is that the way Ingenix 
obtained physician charge data was through what you called a 
voluntary data distribution program. Correct?
    Mr. Slavitt. Yes, Mr. Chairman.
    The Chairman. Insurers would gather up the charge data and 
then send it to Ingenix to be used in your databases. Is that 
correct?
    Mr. Slavitt. Yes, Mr. Chairman.
    The Chairman. And under Ingenix's protocols, insurers were 
supposed to send all of their charge data. Correct?
    Mr. Slavitt. Yes, Mr. Chairman.
    The Chairman. They were even supposed to submit a form--
life is complicated, but they were supposed to submit a form 
certifying they were sending all of their data.
    Mr. Slavitt. That is correct.
    The Chairman. But we know now that they were not sending 
all of their data to you. We know that. They would scrub the 
data--you have sort of pushed that aside during your testimony 
so far this morning--before they sent it to Ingenix. For 
example, Aetna would skim off 20 percent of the charges before 
they sent the data to your company, your wholly owned company. 
And other insurance companies had similar practices. The data 
you were getting was biased in favor of the insurance 
companies. I would stipulate that. If I were a lawyer, I would 
probably say that better.
    Mr. Slavitt, does the fact that you were receiving only 
partial, prescreened sets of data from your contributors not 
raise doubts about the accuracy of your data-based products? I 
mean, it does in your statement here. You say that you really 
cannot be responsible for it.
    Mr. Slavitt. Senator, if we were, indeed, only getting 
partial data and, indeed, selective data, that would absolutely 
give this committee and it would have given me reason to be 
concerned. As a matter of fact, when we receive our data, we 
run a number of analyses, in addition to the certification 
which requires a signature which states that the data is both 
accurate and complete--we run a number of analyses to check and 
make sure that that, indeed, has happened.
    Routinely--I would estimate five or six times a year--we 
find that for whatever reason the data that comes in is not 
complete. When we find that to be the case, we do one of three 
things. We either call the company and request a resubmission 
and get one. If we do not get one satisfactorily, we conduct 
our own audit, and if we are still not satisfied, we do not 
include the data in the database.
    The Chairman. Mr. Slavitt, does the fact--let me go on to 
Massachusetts.
    There was recently a public trial in Massachusetts. During 
this trial, a senior Ingenix executive admitted under oath that 
Ingenix did not audit the data they were getting from the 
insurance companies. In other words, Ingenix did not go back to 
the insurance companies, did not ask them to prove that they 
were sending all of their charge data.
    Now, auditing is widely accepted. When you own the whole 
deal, I would think that you would be interested in doing that 
to make sure that you were right. You did not have to worry 
about competition, so perhaps you decided you did not need to.
    Why did you not perform regular audits to make sure that 
the data you were getting was complete and accurate?
    Mr. Slavitt. Senator, our procedures had us go through an 
audit process with data submitters when the analysis of the 
data indicated that there was a reason to do an audit.
    The Chairman. What do you mean a reason to do an audit? I 
mean, this is something you do automatically. You do not have a 
reason to do an audit. I do not have a reason to take an exam 
if I am going to college. I have to take it.
    Mr. Slavitt. Well, I guess it depends on how we were to 
define an audit, and I do not mean that fliply. But if a 
submitter of data we knew had, say, 1 million members, we 
understand using national averages and using past experience 
and using all sorts of methods how many bills that would be 
likely to create. So each time that the data was submitted, we 
would run tests, and if it appeared to us that we were getting 
data which would indicate that there is no possible way that 
that represented 1 million members, we had tests, routines that 
our statisticians deployed that would indicate that to us, in 
which case we would stop the presses and we would pursue that 
and we would pursue that vigorously.
    The Chairman. Well, why was it that the court found that 
the data was incomplete?
    Mr. Slavitt. I need to refamiliarize myself with that 
Massachusetts case, but I think what I heard you say was that 
someone from my company said that we do not routinely perform 
audits. Is that what you said?
    The Chairman. That is what he said.
    Mr. Slavitt. That is what he said?
    So in the context of do we perform an annual audit----
    The Chairman. The name was Carla Ghee.
    Mr. Slavitt. Yes.
    We do not perform, for example, an annual audit of our 
clients and go through their processes, go through their 
systems, and so on and so forth. That could be something that 
this new entity, nonprofit, chooses to do, and that might be a 
prudent step. I could not argue that the more safeguards and 
the more processes and so forth that we go through will be of 
benefit.
    The Chairman. Good.
    At our hearing on Thursday, Dr. Nielsen, the first woman 
chairperson of the American Medical Association--naturally, she 
is from West Virginia, so she has to be good--was critical of 
the fact that Ingenix considered only the medical service 
delivered to the patient and did not consider the expertise or 
qualifications of the health care provider.
    On Thursday, we discussed a hypothetical case, but today I 
would like to talk about an actual case. It involves general 
practice dentists and periodontists. Periodontists are dentists 
with additional specialized training to treat advanced gum 
disease. The problem was that both dentists and periodontists 
often used the same billing code, in this case, D0150, to bill 
an office visit. But it appears that on average periodontists 
charge more for their office visits than general dentists and 
with reason.
    The case I want to talk about involves a consumer named 
Jill Faddis who lived at that time near Seattle, Washington. In 
2001, her husband was charged $140 for an appointment with a 
local periodontist, but the insurance company, in this case 
Aetna, told them that the usual and customary rate for that 
service was $65. Ms. Faddis took out her Yellow Pages--this is 
a woman of force, life force--and called every periodontist in 
her area. She found that periodontists billed between $110 and 
$160 for the service that her husband had received.
    We have a chart. I have it. Do you have it? It is very 
interesting. It is extremely interesting. Does the press have 
it? OK.
    [The information referred to follows:]
    
    
    But here is what she also discovered. Ingenix automatically 
invalidated the high periodontist charges because they were so 
much higher than the fees dentists charged for their services. 
These were valid charges. They represented the prevailing rate 
periodontists charged for their services in this area, but 
Ingenix threw them all out of the data set. They threw them 
out. The result of this practice was that Ingenix and Aetna 
were reimbursing customers half of what the prevailing charge 
was in this area for periodontist services.
    My staff spoke with Ms. Faddis yesterday. The end of the 
story was that she and her husband were stuck paying $75 out of 
their pockets they did not owe.
    Now, that is not a lot of money, but if you are going 
through today's economy or if you come from many places in this 
country, that is a tremendous amount of money. And when it is 
repeated thousands of times, obviously it gets worse.
    So this practice saved the insurance company money, but it 
was frustrating and costly for Ms. Faddis. She was left feeling 
that either her insurance company or her periodontist had 
ripped her off. That is what she told us.
    So, Mr. Slavitt, can you explain why Ingenix scrubbed the 
valid medical charges from your database, number one?
    Mr. Hemsley, can you understand why these kinds of 
practices make consumers and doctors so angry?
    Mr. Slavitt. So, thank you for sharing that. I think I 
followed it. I may need to--at some point want to get more 
familiar with that situation. But let me speak to a couple of 
the points that I think you are getting at here, which are 
important questions.
    One of those questions is why does the database use the 
same code for two different specialists who might use the same 
service or, in fact, that can be applied to a physician 
assistant and a physician doing the same service. That is, 
indeed, how it works. This is the same system that CMS uses.
    The system was designed by the AMA. The AMA designed a 
system that is based on the service rendered, not where it is 
performed or who performed it. It is called CPT, as you well 
know. It is a very detailed system. So it incorporates--the 
reason there are so many codes is because it allows the 
physician to code it based upon the level and intensity of the 
resources that they apply.
    What it allows physicians to do, because I think this ends 
up working both ways, is as physicians have gotten busier and 
busier and busier and have less and less time to see patients, 
they can send a physician assistant, who is very qualified for 
a lot of tasks, to see a patient for 15 minutes, code the 
visit, and not degrade what they receive.
    The Chairman. Now, you are not talking about the example 
that I used. You are making up your own example. Right?
    Mr. Slavitt. Yes. Two points I am trying to make. One is 
that we use the same system that everybody uses to reimburse. 
Otherwise, it would be apples to oranges. So we use a system 
that was designed by the AMA itself. So, therefore, a 
periodontist and a dentist who performed the same service, if 
they coded it the same way, would, indeed, come the same way. 
We did not make that decision. We are following that accepted 
guideline that----
    The Chairman. So, in other words, if the AMA did it--and I 
have not been a great fan of the AMA in the past, nor have they 
been of me. I am becoming warmer now that I see a brighter 
future for them. And she testified very strongly against both 
of you and what you are doing. Very strongly.
    Because the AMA was doing it, why does it make it the right 
thing for you to do? Do you not know it is wrong?
    Mr. Slavitt. Well, what I am trying to explain is why we 
made the decision that we made. I believe----
    The Chairman. No. I understand you are saying that.
    Mr. Slavitt. I believe it was the right decision. I believe 
other people----
    The Chairman. You believe AMA was right.
    Mr. Slavitt. I believe that adding yet--with 8,000 codes 
and 500 geographies, adding a third dimension of complexity to 
the data would get the sample sizes so small as to be a lot 
less meaningful. That is what I believe. But a reasonable 
person could conclude something different, and I respect that. 
I understand that.
    But I do not want that to be tied with an intent to 
perpetrate some sort of fraud because I think it can happen as 
often on the lower side as on the higher side. It is an attempt 
to use the data in the way that it is commonly used in the 
industry so that it can serve a function for the industry.
    The Chairman. Well, you are sort of emphasizing, in your 
previous testimony today, that you do four times as much on the 
cutting off of the low side than the high side. Boy, you are 
going to have to really prove that to me. And I would like to 
get a whole bunch of paperwork from you showing that.
    Mr. Slavitt. OK.
    The Chairman. All right. Mr. Hemsley. It is hard to say. We 
are all so accustomed to Hemsley.
    In our hearing on Thursday, we had a witness from the New 
York Attorney General's Office. Her name was Linda Lacewell. 
You must be familiar with her. One of the things we discussed 
with her was the results of her investigation into 
reimbursements for rates out-of-network for out-of-network 
doctor visits in Erie County, New York.
    I would like to show you another table that Ms. Lacewell 
and I discussed at the hearing on Thursday. Take a moment to 
look at it. You will understand it right away.
    [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),
  20.

    The first column contains the various billing codes that 
cover doctor office visits, and the second column presents the 
range of usual and customary reimbursements, as calculated by 
Ingenix.
    Now, let me explain the third and fourth columns. Ms. 
Lacewell and her staff went back and independently collected 
doctor visit claims data for Erie County. They just went to 
work. They have a large staff. It was New York. They could do 
it. Most states cannot. Our state could not. My state could 
not. They hired a health care economist to analyze the data and 
develop rates that could be directly compared to the Ingenix 
data.
    The results of this analysis are presented in the third and 
the fourth columns. What they show is that the insurance 
industry reimbursement rates, as calculated by Ingenix, were 
anywhere from 10 to 25 percent lower than what doctors were 
actually charging their patients in this area. This is solid 
information. You all quickly settled for $350 million. There 
must have been something there.
    Mr. Slavitt. We were not shown this report prior to 
settlement.
    The Chairman. Well, it does make any difference to me 
whether you were shown it. They had done their homework, and if 
you did not see them, then I am so sorry. But you sure settled.
    So here is what this table means for real doctors and 
consumers in Erie County. If a doctor in Buffalo is charging 
$84 for an office visit but the insurance company is only 
paying $74 for the visit, consumers get stuck with a $10 
balance. Now, they should not be paying that. You should or he 
should. Now, it is not a lot of money, but it is not the amount 
of money that counts here because it is just added up and added 
up and added up because people have to keep going to doctors.
    It sort of takes me back to this earlier statement that you 
made that you do not stand--it is for informational purposes, a 
database ``for informational purposes only, and Ingenix 
disclaims any endorsement, approval, or recommendation.'' That 
is an extraordinary thing to say for a group that has the whole 
business. It is an extraordinary thing to say, but you say it. 
You do not stand by what you produce.
    So, Mr. Slavitt and Mr. Hemsley, do you dispute the New 
York Attorney General's findings that insurance companies were 
under-reimbursing consumers for doctor visits in Erie County, 
New York? Do you dispute that?
    Mr. Hemsley. We do not agree with the findings----
    The Chairman. You do dispute it.
    Mr. Hemsley. We do. If you take a look at what they 
reviewed, they reviewed five counties. They reviewed six codes. 
They reviewed a million claims over 4 years. That compares to--
our comparable database is updated four times a year. It has 18 
million claims, 8,000 codes. On average, that database would 
suggest reimbursements that would be two to four times Medicare 
and one and a half times normal network charges. So we do not 
agree with the conclusions of the Code Blue Report.
    The Chairman. OK. I think I need to explain to you why 
practices like this make people so angry. Mr. Hemsley, 
according to Forbes magazine, you are one of the 400 top paid 
executives in the United States. Your company, UnitedHealth 
Group, reported $3 billion in profits last year. This is not a 
good time to be talking about this. I admit that. $10 per 
doctor visit probably does not cause you to lose a lot of 
sleep, but it is causing a lot of people, 100 million people 
around the country, to lose a lot of sleep and a lot of money 
and a lot of opportunities for their families.
    I have no doubt that your company would have remained 
profitable if you had been doing the proper reimbursement, as 
we on this committee understand it, as the New York Attorney 
General understands it, as you evidently, to some degree, 
understood it when you took the $350 million settlement because 
I suspect there was an alternative that was standing in the 
shadows that you did not want.
    Why did you allow this to happen?
    Mr. Hemsley. Mr. Chairman, we operate the database in a 
consistent fashion to high standards of performance. The 
database is used for reference purposes only, and we do not 
believe that there are--we stand behind the database. We do not 
believe----
    The Chairman. You do not stand behind the database.
    Mr. Hemsley. We do stand behind it.
    The Chairman. He does not. Mr. Slavitt does not.
    Mr. Hemsley. The database, in terms of the integrity of the 
collection of data and the presentation of that data, as it is 
intended to be presented--we believe that database is valid.
    The Chairman. Evidently.
    All right. I am going to make some closing statements. I 
think this is profoundly troubling testimony from both of you. 
So let me say this.
    I would like to review what we know and what we do not know 
about the insurance industry's--how they reimburse consumers 
for out-of-network services.
    First of all, we know that for a long time alert doctors 
and consumers knew that something was wrong about the way the 
industry was calculating usual and customary. But they did not 
have the resources to find out what was really going on. Ms. 
Lacewell from the New York Attorney General's Office described 
it last week and said that the insurance industry's practices 
were hidden in a black box. It took the combined efforts of the 
AMA--this is evidently a new AMA than the one that you said 
this is what we should be doing before--and it took the 
Attorney General's Office to open this box. What they found was 
what they had suspected all along, that consumers were being 
reimbursed at rates that were significantly below the 
prevailing rates. You declined to acknowledge that, but 
frankly, that does not bother me because I am satisfied that it 
is true.
    Armed with this information, the New York Attorney General 
was able to force insurance companies operating in New York to 
change their practices. You had not done so before. You had 
been in business for a long time before. You had complete 
control in your case of what was available for setting the 
payment.
    Because many of the country's largest insurance companies, 
including UnitedHealthcare, CIGNA, Aetna, and WellPoint, do 
business in New York, Attorney General Cuomo's work had a 
national scope. That has been discussed.
    But there are still a number of questions that have not 
been answered. For example, there are hundreds of thousands of 
Federal workers who have health insurance coverage with an out-
of-network option. I will be sending a letter today to the 
Inspector General of the Office of Personnel Management asking 
him to investigate how many Federal workers' out-of-network 
reimbursements may have been reduced by the use of Ingenix's 
databases.
    Another thing we do not know is how widely the Ingenix 
databases were used by insurance companies that do not operate 
in New York. According to our review, Attorney General Cuomo's 
settlements have forced 7 out of the top 25 health insurance 
companies to change their practices. It is a good beginning, 
but it is not an ending.
    Over the next few days, this committee will be sending 
letters to the rest of the top 25 companies asking them if they 
use the Ingenix data to determine reimbursement rates. These 
letters will also ask these companies if they intend to change 
their practices in light of the Attorney General's 
investigation.
    We are continuing this investigation because the American 
consumers deserve to know what they are getting when they pay 
their health insurance premiums.
    This committee has to be and will be henceforth all about 
accountability. Whether it is NASA, whether it is NOAA, whether 
it is aviation, whether it is transportation, we are going to 
be all about accountability.
    And just like I made that vote, as soon as I found out as a 
member of the Intelligence Committee that everything the 
President said was false, every single thing he said in his 
March 23, or whatever it was, speech back in 2003 which sent us 
to war and got the Nation behind him--when I found out, because 
intelligence is not owned by the intelligence committees--it is 
owned by the Government and made available as the Government 
decides to make it available, a situation not unlike us here. 
But as soon as I found out that I had been wrong, I happened to 
be going on Meet the Press, and I said I was wrong.
    Now, a lot of people refused to say they were wrong. Either 
they did not want to. They felt that somehow that would show 
that they were flip-floppers. I would just say they were 
ignoring reality.
    Now, I am going to close this hearing, and I need to tell 
you that I am very unhappy and we are going to continue this. 
But I also need to tell you that I am very proud of both of you 
for coming down here and taking what I think is well-deserved 
abuse because you have done it smoothly. Your testimony was 
remarkably smooth, talking always about the future. It was 
interesting to me that some of our members talked about the 
future because they had missed the first meeting. So it is 
always easier to talk about a better future. But I am one who 
believes that unless you do the accountability business firmly, 
you do not really know what the future might be because the 
future describes itself. So I thank you both and I really do.
    This hearing is adjourned.
    [Whereupon, at 12:13 p.m., the hearing was adjourned.]
                            A P P E N D I X

     Response to Written Question Submitted by Hon. Mark Pryor to 
                           Stephen J. Hemsley
    Question. I understand that United Healthcare and/or companies 
owned by UnitedHealth Group provide health plans through both the 
Medicare Advantage Program and the Federal Employees Health Benefits 
Program (FEHBP). Can you please provide the committee with information 
concerning each health plan offered by United Healthcare or a company 
owned by UnitedHealth Group in 2008 through Medicare Advantage or 
FEHBP, which used data from Ingenix to determine reimbursements for 
medical care provided by out-of-network providers? For each plan 
specify how out-of-network reimbursements were calculated. Please also 
include the same relevant information for any plans offered under the 
Federal Employee Dental and Vision Benefits Enhancement Act.
    I would also appreciate your providing the committee with 
information concerning how these plans may have changed the calculation 
for out-of-network reimbursements following the settlement that was 
reached with the New York Attorney General.
    Answer. UnitedHealth Group companies use the lngenix data bases to 
make reimbursement decisions for only a very small percentage of claims 
administered across our business. The vast majority of claims we 
receive are from care providers and facilities which are in our 
networks. For out of network claims, we use several methodologies in 
addition to a ``reasonable and customary'' standard to determine 
reimbursement amounts. Less than 4 percent of claims we receive are 
processed using the Ingenix data bases.
    Our 2008 experience in the Medicare Advantage Program, the Federal 
Employee Dental and Vision Benefits Enhancement Act, and the Federal 
Employees Health Benefits Program (FEHBP) are consistent with the 
overall experience described above.
Medicare Advantage Programs
    UnitedHealth Group companies served approximately 1.7 million 
members in Medicare Advantage programs in 2008. None of these members 
had a benefit structure which used data from the Ingenix PHCS or MDR 
data bases in connection with out-of-network reimbursements. These 
programs use methodologies and rates published by the Centers for 
Medicare and Medicaid Services (CMS) for reimbursement of out-of-
network services.
Federal Employee Dental and Vision Benefits Enhancement Act
    UnitedHealth Group companies also provided vision benefits to 
around 200,000 members in 2008 through plans offered under the Federal 
Employee Dental and Vision Benefits Enhancement Act. None of these 
members had a benefit structure which used data from the lngenix PHCS 
or MDR data bases in connection with out-of-network reimbursements. The 
vision plans reimburse out-of-network services at a fixed fee that is 
not based on PHCS or MDR.
FEHBP Plans
    In 2008, UnitedHealth Group companies provided medical benefit 
coverage to approximately 300,000 members through the Federal Employees 
Health Benefits Program. None of these members had a benefit structure 
which used data from the lngenix PHCS or MDR data bases in connection 
with out-of-network reimbursements.
    The majority of these members were enrolled in health maintenance 
organization (HMO) offerings which provide no coverage for non-
emergency out-of-network services.
    Approximately 2 percent of United FEHBP members were enrolled in 
preferred provider organization (PPO) offerings in 2008. These 
offerings did provide coverage for out-of-network services; out-of-
network allowed amounts for professional medical services were 
calculated based on a percentage above the Medicare fee schedule, not 
the Ingenix data bases.
    UnitedHealth Group companies also provided vision benefit coverage 
to approximately 150,000 members through FEHBP plans. None of these 
members had a benefit structure which used data from the lngenix PHCS 
or MDR data bases in connection with out-of-network reimbursements. The 
vision plans reimburse out-of-network services at a flat fee that is 
not based on PHCS or MDR.
    United Health Group companies provided dental benefit coverage to 
approximately 200,000 members through FEHBP plans. Some of these 
members had a benefit structure which used data from the Ingenix PHCS 
database in connection with out-of-network reimbursements. These dental 
plans reference the 85th percentile of the PHCS database in determining 
allowed amounts.
    Since our agreement with the New York Attorney General, 
UnitedHealth Group companies have been determining ``reasonable and 
customary'' reimbursements in the out-of-network setting in accordance 
with that agreement. Once the not-for-profit entity is named by the New 
York Attorney General and issues a new database for use in ``reasonable 
and customary'' determinations, UnitedHealth Group companies will apply 
that database in all settings to which it is applicable and which 
require a ``reasonable and customary'' determination.
    Members of United medical plans--including FEHBP enrollees--whose 
dental claims were administered under a reasonable and customary 
standard using the lngenix data bases are covered by the class action 
settlement discussed at the hearing. The settlement is supported by the 
American Medical Association and state medical societies, among others.
    Under the settlement, which is subject to court approval, eligible 
members will receive notice from a court-approved settlement 
administrator which will contain instructions about how to submit a 
claim for a portion of the settlement funds.
    Thank you for the opportunity to provide this information.

                                  
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