The HMO 'Frustration Factor'

Sen. Craig Thomas, R-Wyo. gestures during a news conference in Oklahoma City, Okla. in this Jan. 18, 1996 file photo.
Dr. Kevin Lynch says he's having trouble meeting the bottom line because so many insurance companies aren't paying what they should for patient care. "What would happen if you didn't get your paycheck for three months at a time?"

Now he's one of thousands of doctors across the country suing 11 health insurance giants for allegedly cheating patients and doctors, even breaking the law, to get a bigger profit, reports CBS News Correspondent Sharyl Attkisson.

When asked if he thought they are systematically, intentionally denying legitimate claims, Tim Norbeck of the Connecticut State Medical Society said, "Yes. Yes we do believe that."

As unbelievable as it sounds, Wade Harper says it can be true. He's a former vice president at United Health Care, one of the companies being sued.

"On occasion, management instructed claims examiners to actually discard claims; legitimate claims, throw them away. "

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When that happens, doctors can end up taking the loss or passing along to patient's bills that should have been covered by insurance. It's just one of many illegal tactics insurers are using to turn bigger profits, according to the lawsuits filed by physicians.

"During part of the time I was with the company, there was significant pressure on earnings. Wall Street expectations had not been met on several occasions and there was pressure put on employees at all levels, especially management levels, to increase profitability and ultimately drive stock price," explained Harper.

Another tactic, according to the lawsuits, is called "downcoding." When a doctor submits a claim for a skin biopsy, which costs $120, the insurer may change it, "downcode" it, to a service that pays half — an office visit.

Harper says United did it using a special computer program.

When he was asked if that meant physicians were getting paid less for their services because the computer was actually downcoding their claims, Harper said, "They were getting paid less for their services or they were not getting paid at all."

Insurers also allegedly deny claims for completely bogus reasons. United covered surgery to remove a cancerous tumor, but refused to pay to close the wound saing it wasn't needed.

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Physician Health Services rejected these claims for supposedly being submitted late, "LB" means Late Billing. Yet the company's own statement shows they were filed on time — every one of them.

Harper says when doctors caught the mistakes, his company dragged out the appeals while earning interest on the money. "It was a way to frustrate doctors and sometimes keep the money longer, and sometimes get the doctors and physicians to the point where they would simply give up and accept the fact that they weren't going to get paid."

For doctor's assistant Marion Boyd, the frustration factor is high. "Normally to get paid, we have to resubmit three times."

The insurers being sued strongly deny any plot to avoid paying. Dr. Don Young represents the insurance industry and says with five billion claims a year, there are bound to be some honest mistakes, especially with most doctors still filing on paper instead of electronically.

"We have absolutely no evidence that claims are being denied on purpose," said Young. When asked if he would agree that they at least have a public relations problem, Young said, "We know that we have a problem. We've been working very hard over the last one to two years to deal with that problem."

Harper says United forced him to resign after he blew the whistle.

United calls him a disgruntled ex-employee who's trying to get a better severance package. Harper is now in arbitration with the company. As for Harper's claims, United says "Nothing could be further from the truth."

Florida's insurance department did fine United $65,000 for some of the very practices Harper complained about. But he says that's small change compared to the millions insurance companies can make by cheating doctors and patients.

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