Here we go again.
Following in the footsteps of his predecessor, former State Attorney General (AG) and now Governor Eliot Spitzer, New York's new AG, Andrew Cuomo, seems intent on turning his office into an anteroom to the Governor's Mansion. And, as with Spitzer, he's using the power of the prosecutor's office as his key to success.
So far, we've seen the new AG take on the student loan industry, sue First American
The latest company to get a target painted on its back: UnitedHealth
What's the buzz? Tell me what's a-happening
Happy to. UnitedHealth has a subsidiary by the name of Ingenix, whose business is collecting pricing data from various other insurers to determine the "reasonable and customary" rates for various medical services performed in various locales. Ingenix collates this data, then sells it back to the insurers so that they know how much to pay medical service providers when patients make insurance claims.
Sound good so far? Well, here's the problem, as Cuomo sees things: Pretty much everyone involved in this process has inherent conflicts of interest built into the roles they play. The insurers Ingenix polls benefit from giving Ingenix low-balled pricing data, on the assumption that when combined with other insurers' data, the resulting "reasonable and customary" rates will come back low -- meaning the insurers can get away with reimbursing claims at low rates. Ingenix has a conflict, in that the lower the rates it quotes as being "reasonable and customary," the happier its client-insurers will be.
And UnitedHealth? Well, as an insurer itself, and Ingenix's owner, it's doubly conflicted -- which I suppose explains why UnitedHealth got the booby prize of being first sued.
Speaking of sued, investor panic quickly ensued yesterday, as shares of pretty much everybody named in Cuomo's investigation plummeted on a generally "green" day for the stock market. That's not surprising, given the history of what's happened to health insurance stocks in the wake of government investigations recently. You've heard of Tenet Healthcare, right? How about WellCare Health? Yep, prosecutors know how to wield a lawsuit down in Florida, too, and investors in those two companies have paid a steep price.
With Cuomo promising to seek hundreds of millions of dollars -- the difference between the low rates the insurers agreed to call "reasonable and customary" and the amounts for which doctors actually billed their insured patients -- from the health insurance industry in compensation, there does seem to be cause for panic.
Is past prelude?
Before I answer that question, let me disclose here that I'm doubly conflicted on this story. First, I'm a UnitedHealth shareholder myself, so biased in favor of the company. Second, I'm UnitedHealth insured, so I'm biased, um, against the company. Bear both of those biases in mind as you read on.
Here's my read on what happens next: Cuomo's prosecution of UnitedHealth and its peers isn't going to make shareholders very happy, at least in the short term. The bad press alone will weigh on their shares, and none more so than UnitedHealth's, sitting as it is at the epicenter of the current controversy.
Longer-term, though, it's not at all certain whether we're looking at a WellCare kind of a situation, where the government's prosecution continues to hamstring the stock price, or something more along the lines of Express Scripts, which was sued by Cuomo's predecessor back in August 2004 -- and has seen its stock price quadruple since.
Personally, I'd bet on something in between. While Cuomo's correct to point out that the industry's practices are self-serving, from a legal perspective, I expect he will have trouble making the case that rates which the insurers have been using over the past decade are not "reasonable and customary." Reasonable -- that's a subjective standard. I envision the insurers arguing that if their rates are anything like what Medicaid, for example, pays doctors for their services, then the rates cannot be called "unreasonable." And customary -- by its own admission, the AG is arguing that this system has been in place for a decade or more. Seems to me that anything that's lasted that long has probably ossified into a custom of some sort.
From where I sit, the most likely result of all this sound and fury is several months of posturing by both sides, concluding with a token fine paid by the insurers, and an agreement to improve how they do business in the future.
The real issue is that no one ever knows how much they will wind up paying for their health care until after the fact. The obvious long-term solution is to make sure that patients know what they'll be charged before services are rendered -- in time for the patient to do something about it (like choose to visit a different doctor). An expansion of this program would be a good start.