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Contributing Author


Jack A. Janov

Recent Challenges to the Use of “Usual, Customary, and Reasonable” Medical Provider Charge Data to Price Reimbursement to Non-Contracted Medical Providers and the Potential Implications for Payers and Providers



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Hospitals, physicians and other health care providers often have contracts with health care pay- ers which define the payment rates for medical serv- ices and procedures that are furnished to patients. In the absence of a payment contract or legally mandat- ed rates, in most states these non-contracted medical providers are legally entitled to receive the “reason- able value” of the services provided.1 A common method used to establish the reasonable value for medical services furnished by non-contracted providers is to apply “usual, customary, and reason- able” (“UCR”) provider charge data. The UCR data are gathered through surveys and other means, and consist of “going rates” for various enumerated health care services furnished by non-contracted providers in defined geographic areas.

Providers have challenged the fairness of UCR pricing and the validity of the underlying UCR data. If UCR pricing cannot be used, what other readily available means exist to determine reasonable value  in the absence of a legal or contract rate? Some providers argue that “billed charges” should be used. Many health care payers believe billed charges are arbitrary and overstate “reasonable value.” Some courts have also rejected billed charges as the stan- dard for “reasonable value.” Others argue that “Medicare-allowable” reimbursement rate equiva- lents reflect reasonable value.


Recent Legal Challenges to UCR Pricing

Four recent court actions reflect many of the various legal challenges to the use of UCR pricing data by insurers to set the reimbursement rates for non-contracted providers.

In  Davekos  v  Liberty  Mutual  Insurance  Co.2,  a

Massachusetts appellate division court addressed the admissibility of UCR non-contracted provider pric- ing data used by Liberty Mutual. This data was pro- vided by Ingenix, a widely-used supplier of UCR medical provider pricing data. The plaintiff was a non-contracted chiropractor who challenged Liberty Mutual’s third party insurer payment which was based on UCR reimbursement rates. Davekos treated a patient who had sustained injury in an automobile accident caused by a Liberty Mutual insured. Davekos had no contract with Liberty Mutual, and he sought to be paid his full billed charges by Liberty

Mutual. Liberty Mutual paid Davekos based upon a UCR calculation. Davekos challenged the payments as not being usual, customary, fair or reasonable. Although the trial court accepted the general admis- sibility of the Ingenix UCR provider pricing data submitted by Liberty Mutual, the appellate court reversed and ordered a fresh look in a new trial. The court held that this particular UCR pricing data should not have been admissible because Liberty Mutual did not prove that the underlying data were reliable or that it contained representative charges from Dr. Davekos’ geographic area.

In February 2008, the New York Attorney General (“AG”) issued 16 subpoenas, and served a Notice of Proposed Litigation on several large health care insurers. The notice claimed that the Ingenix UCR payment databases used by such insurers to reimburse non-contracted providers are not accurate. The AG asserted that the failure to properly reim- burse non-contracted providers at accurate UCR rates for comparable physician services creates high- er premiums and uninsured portions for patients. The AG also claimed that any entity contributing to the Ingenix UCR database is motivated to downward- ly manipulate the data. A separate fraud claim alleges that high outlier rates are deleted from the database, which further skews the UCR rates downward.

A federal class action in New Jersey, McCoy et al,

Wachtel, et al, and Scharfman, et al, v Health Net, et al.3, challenged the use of Ingenix data to set UCR pay- ments for non-contracted providers. The plaintiffs alleged that the UCR data improperly includes two separately-acquired databases that primarily contain data that are estimated and calculated, rather than collected. This allegedly skews downward all of the UCR pricing data amounts above the 70th percentile. Plaintiffs also alleged that the absence of proper sta- tistical methodology to gather and sort the data also skews the data downward. The plaintiffs further argued that Ingenix only gathers data from voluntary contributors, which is not representative of all providers, and that the data is blended, which ignores the different licensure, qualifications, and types of providers and facilities.

In July 2007, the AMA and others commenced a

Federal action in New York for a myriad of provider reimbursement issues, one of  which challenged the


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accuracy of the Ingenix UCR data. As in the New Jersey class action, the AMA alleged that one large aspect of the database was derived and calculated, similar to Medicare reimbursement methodology, rather than being “collected.” Also similar to the New Jersey action, the plaintiffs claimed that another acquired portion of the Ingenix database was origi- nally designed to only provide a general idea of pre- vailing provider charges, not a precise amount for reimbursement purposes.


Recent Challenges To UCR Pricing Have Not Addressed The Key Issue: Whether The Actual Payment Amounts Accepted By Non-Contracted Providers Best Indicate Reasonable Value

Earlier court decisions indicate that the amounts that health care providers typically accept as payment can be a better indicator of reasonable value.

In Temple University Hospital, Inc. v Healthcare Management Alternatives, Inc.4, a hospital alleged it was underpaid for a time period in which it lacked a reim- bursement contract with a health care payer. The court rejected the hospital’s claim for full billed charges, holding the hospital could not “unilaterally set a price for its services that bears no relationship to the amount typically paid for those services.” The court explained that “in the absence of an express contract, the law requires the payment of reasonable value,” which is normally what someone “receives for




op the definition of “reasonable value” reimburse- ment for non-contracted providers. Providers who challenge UCR pricing assert that charges for the same services should not be blended across all providers and facilities to arrive at a reasonable value. But payers maintain that if a medical service can be safely furnished by a physician, physician’s assistant, or advanced practice nurse, or if physicians can per- form the same service in their office, hospital or clin- ic, then pricing data for the same services provided in each of these settings should be blended to deter- mine the reasonable value.

Payers assert that criticisms of the statistical methodology used to gather and derive UCR values are misplaced. For example, the U.S. Census employs voluntary data collection which does not include responses from all residents. Yet this does not under- mine the value of the collected census data, as it is cited and relied upon by academic and governmental entities. If UCR data are rejected, courts may instead use Medicare equivalent or lower rates to set the rea- sonable value for non-contracted provider reim- bursement. In sum, appellate cases that have addressed the reasonable value of health care servic- es indicate that in the absence of a contract, trial courts may reject billed charges as the indicia of rea- sonable value, and instead assess what medical providers typically accept as payment for services from all types of health care payers.

a given service…from the community that it  serves.”                                                                                                                                                   

The “relevant community” in this case was com-

prised of “the Hospital's patients who are covered by insurance policies and federal programs.”

Similarly in River Park Hospital, Inc. v BlueCross BlueShield of Tennessee5, a Tennessee Court held that

1 See, e.g., Temple University Hosp. v. Healthcare Management Alternatives (Pa. Super Ct. 2003) 832 A.2d 501, 508-509; River Park Hospital Inc. v BlueCross BlueShield of Tennessee (2003 Tenn.) 173 S.W.3d 43, 60; Victory Memorial Hosp. v. Rice (1986) 143 Ill.App.3d 621, 623; Coalition for Quality Health Care v New

emergency services furnished by the non-contracted provider  were  to  be  paid  at  a  “reasonable rate of                                                                         2

reimbursement.”    Further,  the  hospital’s “full stan-                                                                         3

Jersey Dept. of Banking and Ins. (2003) 358 N.J. Super 123. (2008) 2008 WL 241613 (Mass.App.Div.) (Not reported in N.E.2d.).

Civil Action No. 03-cv-1801 et. al., U.S.D.C. New Jersey.













© 2008 Locke Lord Bissell & Liddell LLP.

dard [billed charges] rate” may be pertinent to the determination of a reasonable rate, but hardly con- clusive regarding the reasonable value of emergency services furnished by the hospital. This contrast between billed charges and the payment rates typical- ly accepted by providers was also noted in Vencor, Inc. v National States Insurance Company, where the court noted that “providers’ supposed ordinary or standard rates” may only be “paid by a small minority…” of health care payers.6


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Potential Implications For Providers And Payers Future litigation will probably continue to devel-

4       (Pa. Super, 2003) 832 A.2d 501.

5       (2003) 173 S.W.3d 43.

6       (9th Cir. 2002) 303 F.3d 1024, 1029 n. 9.