The Improper Use of Algorithm Pricing Tools by Health Insurers

At least 40 states have introduced or passed legislation on AI regulation in 2024, with a half-dozen measures related specifically to the health-care industry, according to the National Conference of State Legislatures. A common focus of the health-specific bills has been greater oversight on insurers’ use of AI tools to expedite coverage decisions.

The effort comes as top insurers Humana Inc., Cigna Corp., and UnitedHealth Group Inc. are facing class actions from consumers and their estates for allegedly utilizing AI technology to improperly deny coverage.

Bills in New York and Pennsylvania would mandate insurers disclose to providers and individuals when AI is used. At least 11 states have also issued broad guidance on AI standards in health insurance based on a model released in December by the National Association of Insurance Commissioners.

Regulating AI

While consumer protection and insurance laws have primarily been a state function, AI doesn’t seem like an issue that should be regulated state by state, because the same process is being promulgated nationwide.

This leads to a patchwork of different rules health insurers may have to comply with across states.

Senator Amy Klobuchar, D-Minn., has introduced legislation prohibiting the use of pricing algorithm collusion through the use of nonpublic competitor data.

She has sent a letter to the Attorney General's office and to the Federal Trade Commission asking for an investigation into the use of algorithm pricing tools by health insurers.

"Recent reporting has indicated that firms may be using algorithmic tools to undermine competition and push additional costs onto patients that receive healthcare out of their insurance network," Klobuchar wrote, citing New York Times reporting.

In the letter, Klobuchar specifically cited MultiPlan, a Massachusetts-based company specializing in claim-cost management.

The firm sells data to help insurance companies determine how much they should pay providers for out-of-network medical care, and how much of that cost is passed on to patients, Klobuchar said in the letter, again citing the New York Times report.

Why This Matters

In April Allegiance Health Management, which provides services in mostly rural areas of Louisiana, Mississippi and Texas, brought a class action complaint against MultiPlan, Aetna, Elevance Health, Centene, Cigna, Health Care Service Corporation, UnitedHealth Group, Humana and Kaiser Permanente.

The nation's leading commercial #healthcare insurance providers, through MultiPlan, have conspired to fix, suppress, and stabilize the #reimbursement rates that they pay to healthcare #providers for out-of-network healthcare services in the United States in violation of Section 1 of the Sherman Antitrust Act.

Defendants' knowing and purposeful use of shared 'repricing' tools sold and promoted by Defendant MultiPlan, Inc., has enabled and facilitated this anticompetitive scheme, causing Plaintiffs to receive artificially suppressed reimbursements for out-of-network healthcare services they have provided from no later than July 1, 2017, to the present.

Summary

Currently, antitrust law requires that “proof of an explicit agreement to fix prices” is shown in order for conduct to constitute illegal price fixing. However, firms can now algorithmically coordinate prices, obviating the need for the creation of an explicit agreement. The proposed bill seeks to address this loophole.

To assist with enforcement of the bill, companies utilizing pricing algorithms would be mandated to disclose that fact, and regulators would be granted the right to audit pricing algorithms should they suspect that the algorithm harms consumers. Finally, companies would be barred from utilizing “competitively sensitive information from their direct competitors to inform or train a pricing algorithm.”

It is a truism that the law takes time to catch up to technological developments. In 2024, an election year, few expect substantive legislation will pass. Yet proposed legislation and committee hearings are building blocks that are constituting the federal government’s response to AI. Moreover, federal enforcement agencies have already staked a claim to utilize their existing authority to bar such business practices.

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