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United Healthcare must refund $4.4 million

A federal judge has ruled that UnitedHealthcare overcharged more than 55,000 customers in Massachusetts and Rhode Island between 1993 and 1998 and has ordered the insurer to repay them $4.4 million.

According to the decision by United States District Court Judge Ernest C. Torres, UnitedHealthcare customers paid more than the 20 percent co-payment stipulated in their policies due to undisclosed discounts the insurer gave to the HMO's network physicians. Torres issued his decision in U.S. District Court in Providence, R.I., on May 17, 2001.

The health

insurer

negotiated discount prices with health care providers and

thus was never billed for the

"full" cost.

Here's how it worked: UnitedHealthcare would charge a 20 percent co-payment based on the "full" cost of treatment. However, the health insurer negotiated discount prices with health care providers and thus was never billed for the "full" cost.

The lawsuit was filed in 1996 by Providence attorney Peter Wasylyk on behalf of Linda Corsini and Alan Cantara, two UnitedHealthcare customers who discovered discrepancies in their bills. "They just couldn't get the numbers to balance," says Wasylyk.

According to the lawsuit, Cantara underwent hernia surgery in 1995, an operation that required a 20 percent co-payment under his UnitedHealthcare plan. Subsequently, he was billed $496, or 20 percent, of the $2,481 "charged" by the hospital. However, Cantara discovered that the hospital's "contract" or "discounted" charge was only $1,111 to UnitedHealthcare, and that the insurer had paid just $615. This means that Cantara's co-payment was 45 percent of the total amount payable to the hospital. Corsini encountered a similar situation whereby she was charged a co-payment that was 37 percent of the total amount payable to her podiatrists for treatment she received to her feet.

The reason why some insurers have been able to get away with this tactic is that the law supports them when they refuse to disclose how they determine their "usual and customary" fees, according to Dr. Harvey S. Frey, director of the Health Administration Responsibility Project (HARP) in California. Frey says these fees often have no relation to actual charges and insurers claim that how they determine them is a "trade secret." Therefore, it is often difficult for the average consumer to find out what the insurer is actually paying the provider.

Chipping away at ERISA

Wasylyk says that Torres' ruling is another blow to the Employee Retirement Income and Security Act (ERISA), further eroding the federal law that has shielded health insurers from medical liability for more than two decades.

ERISA does allow plaintiffs to sue for breach of contract and Torres ruled that UnitedHealthcare did indeed break its contract with its customers when it charged them co-payments higher than the 20 percent co-payment stated in their policies. In fact, according to the lawsuit, the insurer's customers' 20 percent co-payment actually covered the entire cost of the care they received in more than 5,300 cases.

"The premise of group health insurance is that the healthy help pay for the sick," says Wasylyk. "In this case, the sick — or at least the people who used their health insurance the most often — subsidized the healthy."

UnitedHealthcare says it will review the judge's opinion and evaluate its options. The insurer also points out that it stopped calculating a patient's co-payment on the "discounted" rather than the "charged" fee three years ago.

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