PHOENIX — Arizona’s attorney general is accusing major health insurance companies of engaging in illegal price fixing that profited the companies at the expense of patients and their doctors.

In a new lawsuit announced Monday, Attorney General Kris Mayes said the companies conspired with each other, at least indirectly, to decide how much they would reimburse doctors and hospitals for certain medical procedures. She said they did that by sharing information — she says illegally — about what level of payment medical providers were willing to accept.

Mayes said they did this by providing data about their own payment practices with a company known as MultiPlan. That company then created an algorithm that was fed back out to participating insurers, telling them how much — or how little — they needed to pay, she said.

That amounts to an illegal cartel designed to fix payments, Mayes said.

“Instead of competing with each other, instead of making independent decisions about payments, they allegedly used the same data and the same tools, which artificially lowered payments across the entire health insurance industry and health-care industry,” she said.

The most immediate result, Mayes said, was that health-care providers — doctors and hospitals — were paid far less than what they say it actually costs to deliver care. In turn, that left the providers to either absorb the difference or bill the patients.

She put the overall losses for Arizonans in the “billions of dollars” range. Individual patient losses could be tens of thousands of dollars, Mayes said.

But the attorney general said it will take the lawsuit to ferret out the specifics.

‘We deny the allegations’

The sole immediate response to the lawsuit came from CVS, the parent company of Aenta, one of the defendants in the case.

“We deny the allegations and will defend ourselves vigorously,” said spokesman Phillip Blando.

Other defendants include Humana, Cigna, UnitedHealth, Centene, Moline Healthcare, and two subsidiaries of Blue Cross.

Who paid more for their care

What Mayes called a “scheme” does not affect everyone.

Generally speaking, those who have coverage through health-maintenance organizations are part of a plan where the doctors in the network have agreed, ahead of time, to accept what the insurers will offer. But patients are limited to getting care from those in network.

Also largely unaffected are those who have preferred-provider organizations which enable them to get care from virtually any provider — but only if they get care from in-network providers.

But Mayes said people purchase PPO plans — and pay more — specifically because it provides more flexibility in where they can get their care. This scheme leaves those patients then having to pay even more for their care when their doctors and hospitals don’t get what they have billed from the insurers, she said.

It also can affect those in HMOs who may need care while traveling and are not seen by in-network providers.

Dr. Andrew Carroll, a Chandler family practice doctor, said there are other situations where people who have bought coverage could be stuck with surprise bills.

For example, he said, there are only a handful of specialists in the entire state who can deal with bone cancer. If none of them are part of an insurance network — which he said is not unusual for certain specialists — that leaves the patient on the financial hook for needed treatment, like such as removing a cancerous leg, and stuck with whatever the patient’s insurer will not pay the doctor, Carroll said.

‘Price fixing using new technology’

Mayes called what is happening “another example of old-fashioned price fixing using new technology.”

“But it is against the law, all the same,” she said.

It starts, Mayes said, with insurers relying on MultiPlan to set their reimbursements instead of each one making that decision independently, something she said they used to do.

“And they let MultiPlan’s algorithms — the same algorithm used by their competitors — do it for them,” the attorney general said.

But Mayes said the problem is bigger.

“That algorithm produced unreasonably low payments for medical services,” she said, with no differential based on who provided the service, how complex the case might be, or the community in which the care was provided.

“Because every insurer used the same algorithm and the same data inputs, they all paid below the customary fair amounts,” Mayes said. “Competition disappeared in the state of Arizona.”

She said MultiPlan collects a percentage of the savings it generates, a figure she said can be as high as 12%.

“This arrangement incentives MultiPlan to generate the lowest health-care provider compensation possible, regardless of whether the rates applied are usual, customary, or reasonable,” the attorney general said.

The losers are the doctors and patients, Mayes said.

“The lower MultiPlan’s algorithms depress the prices for a healthcare provider’s services, the more the client-payor saves, and the greater MultiPlan’s fee,” the lawsuit said. “This incentivizes the cartel to set prices for healthcare goods and services as low as possible and leaves providers and patients to absorb the significant difference in the amount paid to providers compared to the cost and value of the services delivered.”

It may not be just the insurers who benefit.

A spokesman for the Attorney General’s Office noted that some employers purchase coverage for their employees through one of the insurance companies that used the algorithm. He said the system then could mean lower costs for the employer who, through the insurer, is paying less for the procedure.

Carroll acknowledged that doctors do a bit of maneuvering themselves to curb their losses. He said that can take the form of submitting bills for specific procedures in higher amounts than a customary cost knowing that the amount will be reduced.