New York Probes UnitedHealth

OKLAHOMA CITY -- UnitedHealth (UNH Quote - Cramer on UNH - Stock Picks) is at the center of a new industrywide investigation launched by New York Attorney General Andrew Cuomo.

The giant health insurer has been accused of using its popular Ingenix database to manipulate reimbursement rates in an ongoing scheme that has cost consumers "hundreds of millions of dollars," Cuomo said in a press conference Wednesday.

He plans to sue both UnitedHealth and Ingenix, which supplies rate information to its parent under an arrangement that Cuomo considers a "gross" conflict of interest. Cuomo has subpoenaed 16 other health insurers, including heavyweights Aetna (AET Quote - Cramer on AET - Stock Picks) and WellPoint (WLP Quote - Cramer on WLP - Stock Picks), in the meantime.

Ingenix, a highly profitable division of UnitedHealth, collects data from insurers all across the country to determine the "reasonable and customary" rates for out-of-network services. It then pools that information together and sells the results back to insurers so they can establish reimbursement payments for their own customers.

Customers often pay higher premiums for the right to see doctors of their choice. Moreover, their health insurers cover less of the bill -- typically no more than 80% -- when they do so.

Still, patients carrying insurance that promises to pay 80% for out-of-network services would expect to pay a minor portion of the bill. However, Cuomo claims, Ingenix found a way to game the system. If a routine doctor's visit normally costs $200, he said, Ingenix might report that it costs $77 instead. Insurers using that data could then pay 80% of that far smaller amount and leave their customers with the bulk of the bill.

"The lack of accuracy, transparency and independence surrounding United's process for setting a 'reasonable and customary rate' is astounding," Cuomo declared when announcing the investigation. "United's ownership of Ingenix, coupled with the inherent problems with the data it is using, clearly demonstrate a broken reimbursement system designed to rip off patients and steer them towards in-network doctors that cost the insurer less money. ... Getting insurance companies to keep their promises and cover medical costs can be hard enough as it is."

UnitedHealth said in a statement that it is cooperating with Cuomo's probe, and that it believes in delivering "high quality and dependable" reference tools.

"The reference data is rigorously developed, geographically specific, comprehensive and organized using a transparent methodology that is very common in the health care industry," UnitedHealth said. "We believe these reference tools add substantial value to the health care system by providing all participants -- providers, payers and consumers -- with a long-standing transparent, consistent, and neutral line of sight into the health care market, its costs and performance."

Shares of UnitedHealth were tumbling 4.1% to $46.28 on the news. Aetna and WellPoint lost some ground as well.