Apparently opting to strike while the iron’s hot, Mike Orso, president of the New York State Auto Collision Technicians Association (NYSACTA), has written a letter to New York Attorney General Andrew Cuomo urging him to act against insurers following the New York State Department of Insurance’s discovery that some insurers have violated state law when handling claims (read story by clicking HERE).

Cuomo has been aggressively going after health care insurers in New
York for price fixing scams, and NYSACTA is hoping that the same
attention will be turned to auto insurers.

Cigna, as well as other major insurers, have reached agreements with
Cuomo in the nationwide push to reform how health care reimbursement
rates are set. Cuomo said the Ingenix database – as a subsidiary of
UnitedHealth Group Inc. – had a vested interest in helping set rates
low, so companies could underpay patients for out-of-network services.
The investigation revealed that the database intentionally skewed rates
downward through faulty data collection, poor pooling procedures and
the lack of audits.

“The attorney general’s findings were eerily familiar to the ways
insurers use secret surveys, outdated information or caps to fix prices
within the New York auto body industry," Orso said. "It is widely known
that insurers will cap the amount they pay for labor rates, paint and
materials well below realistic costs and often refuse to pay certain
legitimate P-page line item requests based on guidelines controlled by
the individual carriers as the amount they want to pay.”

Orso’s letter reads:

Dear Mr. Cuomo,
 
Congratulations on your recent findings of price-fixing scams within the health care industry in New York. Your latest efforts involving Excellus shows the depth and exposure to misguided efforts and the vulnerability of consumers. Consumers and doctors deserve a fair playing field against powerful insurance companies that dominate the marketplace, taking unfair advantage. Consumers deserve fair treatment by the insurance companies we depend on in our time of need.

We could not stand by quietly as we see similar efforts by insurers in the property and casualty industry. We offer to you advice that similar to health carriers, some major players in auto insurance in New York artificially control prices by setting labor rates and material allowances for (paint and supplies) at artificially low rates by similar tactics using caps and/or network shops that agree to predatory pricing, price-fixing labor rates (below cost).

Insurers have, for the past few years, set up preferred provider body shops referred to as direct-repair program (DRP) shops, much like an HMO in healthcare. However, auto insurance policies are not written as HMO-style managed care policies. Some auto insurers offer DRP status to certain shops willing to work for reduced rates under a variety of different named programs: CARE, PRO, Concierge, ExPress and many others. The hourly rates, parts, repair procedures, paint and supplies are all controlled, and all become point of a contract between the chosen shops and the insurer. At the same time, these insurers market these DRP programs to consumers who have a collision as a benefit. Promises are made touting faster service, insurer-backed guarantees and seamless service. We’ve had reports that insurers are offering monetary incentives (cash payoffs) to steer consumers to DRPs. For the DRP shop, a flow of referrals is created but consumers are often left with a partially repaired vehicle. By contract, certain repair needs are not addressed. Some insurers send consumers to the DRP under the guise of obtaining an inspection (estimate) of the damage, but the effort to indeed repair the damaged vehicle falls under the control of the insurer. We feel a conflict of interest exists when the repairer controlled by the insurer adjusts the claim, negotiates settlement and then repairs the damage.

In the marketplace, these insurers suppress the labor rates paid to all auto body shops by their mere size and by using the contract rates of DRP shops to base all payments on the reduced offers. The non-DRP shops have to solicit their own work and often fend off the actions of insurers that make unsolicited referrals or use subtle, deliberate, goal-oriented word tracks to steer work away from the non-contract shops. This activity thereby controls prices by the insurer’s pure monopsony power. Any auto body shop that knows its costs and operates an up-to-date, legitimate business but does not adhere to an insurer’s predatory pricing allowance is blackballed – there again by special word tracks intended to limit business opportunities and control pricing.

At the insistence of various members of the NY state legislature, we retained an economist who researched and produced a study called, “The Economics of the New York State Auto Body Repair Industry.” A copy is included which lays out the pattern and negative effects of this activity, not only on auto body shops and consumers but also to the economics of New York State. In these difficult economic times, our state is losing, too. Because with every dollar underpaid in claim allowances, New York misses out on the sales tax, income tax, employment benefits and the economic development fair settlements would provide. Also, consider that most insurance companies are headquartered out of New York. Not only is the additional sales tax never collected, but millions in income tax also goes uncollected on those huge CEO pay packages.

The answer is simple. No new laws are required. No new legislation is required. Our insurance department must require insurers to follow the current regulations and hold insurers accountable. Insurers must negotiate all elements of a property claim and not be allowed to set prices by placing caps on labor, labor rates, parts or paint and materials. Not only are the settlement caps a violation of  Insurance Regulation 64, but some insurers may be in violation of the General Business Law §349. (Deceptive Business Practices). Their policies are not advertised or sold limiting the amount they will allow for labor or parts and materials. Many of these activities violate the long standing 1963 Consent Decree, a Federal Court document agreed to in 1963 by over 250 insurers with then Attorney General Robert Kennedy (copy enclosed).

Insurers must NOT be allowed to use contract shop pricing as a price cap when settling claims at non-contract, out-of-network shops. Insurers should be required to inform consumers that network shops repair the damaged vehicle under the insurer’s control and that the repair may not address all the manufacturer’s recommended repairs. Insurers are NOT to suggest or recommend a repair shop unless the claimant insured requests a recommendation. Insurers must NOT be allowed to use crafted word tracks intent on discouraging consumers from choosing their own choice of collision repairer. Insurers must NOT use biased, secret, outdated information to set and control pricing.

We would be happy to discuss these issues with you or a member of your staff in the near future.

For more information on NYSACTA, visit www.liabra.org.