Judge Approves $255 Million Settlement With Health Net Over Out-of-Network Payments

A New Jersey federal judge has approved a $255 million settlement in three class-action lawsuits against Health Net Inc. that alleged the health insurer used a flawed database that sometimes under-reimbursed members' insurance claims.

Under the deal, approved by U.S. Judge Faith S. Hochberg of the U.S. Court for the District of New Jersey in Newark, Health Net is to pay $215 million to more than 2 million members in its health plans in several states. It must also make changes to its business practices valued at $40 million, according to Wilentz, Goldman & Spitzer, the law firm representing the plaintiffs. The class period dates back to 1997.

The database used by Health Net was created by Ingenix Inc., a unit of UnitedHealth Group. Health Net (NYSE: HNT) didn't admit liability. Margita Thompson, a Health Net spokeswoman, said the company is pleased the court approved the settlement. In last year's third quarter, Health Net posted a net loss, mostly on charges by agreeing to settle the suits (BestWire, Nov. 1, 2007).

The deal potentially could have broader implications.

Five months ago, New York Attorney General Andrew Cuomo said he planned to sue Ingenix, which he called the biggest U.S. provider of health-billing information; its parent company, UnitedHealth; and three more subsidiaries as part of an industry-wide investigation into what he called a scheme by health insurers to rip off consumers by manipulating reimbursement rates when they use providers outside their health insurer's networks (BestWire, Feb. 14, 2008). No suit by the attorney general has been filed.

A six-month investigation, Cuomo said, found Ingenix runs a "defective and manipulated database" that most health insurers use to set reimbursement rates for out-of-network medical claims. Two of United's health plans sharply under-reimbursed their members for out-of-network expenses, the attorney general alleged (BestWire, Feb. 14, 2008).

Barry M. Epstein, of Wilentz, Goldman, a lead attorney for the plaintiffs in the Health Net case, said his firm's suit against Health Net, filed in 2001, along with a similar suit currently pending against Ingenix and UnitedHealth in New York federal court, filed in 2000, led to Cuomo's investigation.

He said he and others in his firm met with the attorney general and his staff to explain the fundamental problems with the Ingenix database. "This led directly to his press conference in which he announced the fact that...the Ingenix database was 'invalid' for out-of-network reimbursement," Epstein said. Attempts to speak with Cuomo's office weren't successful.

Health Net was charged with violations of the federal Employee Retirement Income Security Act of 1974, New Jersey's employer health plan law, and the federal Racketeer Influenced and Corrupt Organizations Act. Epstein, meanwhile, said he has a similar suit pending against Oxford Health, a unit of UnitedHealth, also in the New Jersey federal court.

Tyler Mason, a UnitedHealth spokesman, said the company was not a party to the Health Net case; was not involved in negotiating the settlement and does not have any obligations arising out of the settlement. He couldn't comment on the pending suits.

In Cuomo's probe, 16 subpoenas were issued. Among the companies receiving them were Health Net, Aetna (NYSE: AET), Cigna (NYSE: CI) and Humana (NYSE: HUM) (BestWire, Feb. 21, 2008). UnitedHealth has said that Ingenix's reference data "is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry."

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])