Drug And Medical "discount Cards" Come Under Scrutiny
In an effort to reform the advertising and marketing of certain medical discount cards, Attorney General Spitzer today announced settlements with two companies and issued guidelines aimed at reforming misleading practices in the industry.
"As health care costs continue to soar, consumers throughout the nation, especially the 43.5 million uninsured, are looking for ways to obtain more affordable medical care," Spitzer said. "Consumers must be careful with these cards. While the cards can offer some savings, they are clearly not health insurance or a comprehensive alternative to health insurance."
"In addition, consumers must be especially careful with cards that look like Medicare-approved cards, but are not."
Spitzer's action comes as the federal government prepares to roll out discount cards on May 3. While the two companies named in the action are not part of the Medicare Prescription Drug Discount Program, the cases underscore the need for consumers to check on terms and conditions of discount cards before purchasing them.
A joint investigation by Spitzer's Health Care Bureau and Consumer Frauds and Protection Bureau, found that two companies -- Medadvantage LLC, based in Southfield, Michigan and National Association of Preferred Providers/Family Care ("NAPP/Family Care"), previously known as NAPP, based in Houston, Texas -- failed to truthfully disclose the costs and benefits of their discount card programs.
In the case of Medadvantage, which enrolled over 5,700 subscribers in New York State, Spitzer's office found that the company's materials:
- Falsely claimed savings of up to 50 percent on prescriptions;
- Exaggerated the number of dental providers that accepted its discount card; and
- Failed to adequately disclose that members are responsible for paying administrative, pharmacy dispensing and banking fees in addition to the membership fee and discounted fees to providers.
In the case of NAPP/Family Care, which has more than 31,000 subscribers nationwide, including nearly 2,100 subscribers in New York, Spitzer's office raised objections to the firm's direct mailings and advertisements on the Internet that falsely claimed savings as high as 80 percent and to other materials that:
- Created the false impression that NAPP/Family Care was providing health insurance and that its card was reputable because it was affiliated with a non-existent "National Health Benefits Association"; and
- Represented that subscribers would obtain "preferred prices" when other materials represented that it could not guarantee that subscribers would receive service at the "lowest cost."
Under the terms of the settlements, NAPP/Family Care and Medadvantage paid $10,000 and $15,000 in costs and penalties respectively, and are required to modify their advertising and marketing practices. In addition, the companies must refund enrollment fees to any consumer who files a qualifying complaint with the Attorney General's office, including complaints for unauthorized charges to consumers' credit card accounts.
In addition, NAPP/Family Care also agreed that both it and its marketing agents would not engage in "fax blasting" - sending unsolicited fax advertisements or promotional materials - in violation of federal law.
In August 2002, Spitzer announced similar settlements with two other discount card companies based in New York City and simultaneously published a brochure to help consumers decide whether to sign up with a medical discount program.
Because of ongoing problems with deceptive business practices in the industry, Spitzer developed guidelines, released today, to assist the industry in advertising and marketing discount cards in a lawful, non-deceptive manner. The guidelines target practices and claims that may be found deceptive: touting exaggerated potential savings; not disclosing important information that increases the overall consumer cost; not providing membership materials before enrollment; failing to adequately disclose that the discount card program is not health insurance; and failing to obtain written consent before charging a consumer's checking or credit card account.
The guidelines also propose practices that discount card companies should deploy to better serve their consumers, such as:
- Maintaining a toll-free customer call center to assist members in using the program and accessing providers who accept the card;
- Establishing a formal dispute and complaint process; and
- Obtaining prior written authorization to sell or lease members' demographic information or market services to its members that are unrelated to the card.
Individuals unable to afford health insurance are increasingly turning to medical discount cards to reduce their medical costs. According to the Consumer Health Alliance (CHA), a national trade association of the discount health card industry, there are approximately 2 million New York residents that currently participate in discount programs offered by CHA member companies. Many consumers do not fully understand that these programs are not an insurance policy and that cardholders remain liable for all health care fees incurred.
Robert Hayes, Executive Director of the Medicare Rights Center, a national non-profit consumer advocacy organization based in New York City: "Attorney General Spitzer's continuing action against the deceptive practices of medical discount cards and his effort to educate consumers about these cards come in the nick of time, especially for seniors and people with disabilities with Medicare. Many seniors across New York are now receiving phone calls and mailings from various drug and medical card companies that promise large savings in drug costs for seniors. There is a huge potential for illegitimate drug and medical discount card companies and scam artists to confuse seniors who may be interested in enrolling in the Medicare-approved program. Seniors are advised to closely check out official-looking mailings they may receive so as not to confuse private companies that are not endorsed by the federal government."
The Attorney General's brochure for consumers and industry guidelines are available on his web site at www.ag.ny.gov. Spitzer also advised consumers to call his Consumer Frauds and Protection Bureau or Health Care Bureau at 1-800-771-7755 with questions or concerns about discount cards.
The cases were handled by Assistant Attorney General Dorothea Caldwell-Brown of the Health Care Bureau and Assistant Attorneys General Joy Feigenbaum and Christine Morrison of the Consumer Frauds and Protection Bureau.
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