Will managed care die in court?

In unprecedented legal battles, doctors and patients declare "all-out war" on HMOs.

By Neil Chesanow

MOs have long been accused of delaying, slashing, or denying physician reimbursements—and of shortchanging patients by vetoing doctors' clinical decisions for financial reasons.

A massive lawsuit aims to change all that. The action was brought by a consortium of high-powered attorneys last year on behalf of the nation's 600,000 doctors. In the suit—which is being heard in the federal district court in Miami—the California, Texas, and Georgia medical associations, the Denton County Medical Society (Texas), and 20 individual doctors accuse many of the nation's largest for-profit HMOs of using extortion and fraud to systematically steal from them in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

Named in the suit are Aetna, Aetna US Healthcare and its Prudential unit, Cigna, Coventry Health Care, Foundation/Health Net, Humana, PacifiCare Health Systems, UnitedHealthcare, UnitedHealth Group, and WellPoint Health Networks. Miami attorney Harley Tropin, co-lead counsel for the doctors, admits this use of RICO is "cutting edge," since the typical RICO targets are organized crime syndicates, not HMOs. But if the doctors prevail in court, health plans everywhere may be forced to scuttle such practices as:

• Denying and delaying payment on legitimate claims for patient needs.

• Using computer programs that automatically downcode doctors' claims.

• Bundling legitimate claims so that the HMOs don't have to pay the full amount.

• Defrauding doctors by passing along costs of health care that the doctors didn't agree to assume.

• Providing financial incentives to claims reviewers who meet claim-denial quotas.

• Utilizing criteria unrelated to patient care to deny claims, such as guidelines published by Milliman USA (formerly Milliman & Robertson), an actuarial consulting firm.*

The complaint about employing statistical guidelines to make clinical decisions is especially significant, for it raises the issue of who should ultimately manage care: HMOs or doctors. "Our members say the suits are without merit," a spokesperson for the American Association of Health Plans maintains. But Paul Shanor, executive director of the Medical Association of Georgia, disagrees. "The HMOs need to make medical decisions based on scientific evidence and not on a cost basis alone," he says. "They're delaying or denying treatment. They need to stop that and allow doctors to make appropriate decisions."

Doctors aren't the only ones crying foul. Richard A. Epstein, a professor at the University of Chicago Law School, deplores "the effort to try to elevate every ordinary breach-of-contract claim into a criminal or quasi-criminal offense. That makes it impossible for people to deal with these issues in a responsive fashion. The idea that this would count as racketeering seems to say in the crudest terms that the guys who are running HMOs are the blood brothers of Tony Soprano."

Also, if doctors are able to turn the clock back to pre-managed care days, in what sense, then, would care be "managed"?

That has yet to be negotiated, say lawyers for the doctors. It's an issue very much on the minds of patients, too. A parallel lawsuit, filed in Miami on behalf of 32 million health plan enrollees, charges that the HMOs used deceptive advertising and marketing materials to dupe patients into believing they would receive quality care. At the same time, the suit alleges, the HMOs gave doctors financial incentives to deny care. That violates both RICO and the Employee Retirement Income Security Act (ERISA), the patients contend.

If doctors win, they could get a ton of money

"Obviously, this is not light litigation; this is going to be all-out war," says Birmingham, AL, attorney Archie C. Lamb, co-lead counsel for the plaintiffs in the doctors' suit. And for Marie Kuffner, a professor of clinical anesthesiology at the UCLA School of Medicine and immediate past president of the California Medical Association, it really is a war. The HMOs "dictate fees, refuse to negotiate, play one doctor group off another, issue take-it-or-leave it contracts, and change contracts in midstream without warning," she says. The list of excuses for why doctors don't get paid on time—"the check is lost," "we never got the form," "you forgot to fill in a box," "the patient didn't really need this care"—is lengthy, Kuffner asserts.

California doctors have it particularly rough. They earn among the nation's lowest managed care reimbursement rates, yet live in an area where housing costs and other expenses are sky-high. Add a constant state of uncertainty about whether work done will actually be paid for, at what rate, and when, and "it seems like every week, another doctor group goes under," says Kuffner. "We've had it."

"The way the current system is structured, no meaningful pecuniary penalty will encourage the HMOs to do anything other than continue to engage in these deceptive practices," says Lamb. "One company has four people processing millions of claims. That systemic apathy inures to the HMOs' financial benefit, because they make money on the float."

The lawsuit being brought on patients' behalf seeks to recover the monetary difference between the type of insurance coverage subscribers thought they were getting and the coverage they actually received. Another goal of the suit is to force HMOs to spell out benefits up front.

Similarly, the doctors' suit seeks financial redress and an overhaul of HMO business practices. Georgia doctors, for example, demand back pay they feel they're due. "Under Georgia's prompt pay law, enacted in 1999, the insurance companies owe our doctors 18 percent compounded annually for every time they didn't pay on time," says Paul Shanor of the Medical Association of Georgia. "We want money back for the two years that law has been in effect." If they prevail, the doctors stand to gain a bundle: Defendants who lose RICO cases are liable for triple damages.

How the doctors' suit has fared so far

By October 2000, the California Medical Association and 20 individual doctors had filed suits under RICO against eight of the nation's largest HMOs. To speed things up, a panel of judges decided that one federal judge in Miami, Federico A. Moreno, would handle all the pretrial hearings.

In December, Moreno sent some parts of the lawsuits to arbitration—a setback for the doctors. In March 2001, he dismissed some charges that physicians had brought—another setback. But Moreno also said that the doctors' breach-of-contract charges against the HMOs could go forward. That was a big win.

Also in March, the California Medical Association, in an amended complaint, joined the Texas Medical Association, the Medical Association of Georgia, and Texas' Denton County Medical Society in the lawsuit against the insurers, citing scurrilous business practices.

The groups, which have a combined membership of nearly 90,000, hope to underscore physicians' problems with managed care. "The HMOs say that our evidence is anecdotal and isolated and only represents 15 or 50 clients," says Lamb. "But with the Georgia, Texas, and California medical groups joining the suit, there are 87,000 doctors saying, 'They're doing the same thing to me.' "

In May 2001, Moreno ordered full discovery to proceed—another big win for the doctors. "It means we're going to get knee-deep into the HMOs' documents and their witnesses, and we're going to be allowed to prove what we believe we can prove—that there's a conspiracy between the HMOs and their third-party suppliers to cheat doctors by downcoding, slow-paying, pending their claims, and more," says co-lead counsel Harley Tropin. "We don't believe for a second that—oops—this is just some big accident that befell them all at the same time."

In June, Moreno stayed discovery in the doctors' suit to coordinate it with discovery in the patients' case for the sake of efficiency. Moreno also dismissed the patients' claims pending against Aetna. However, he gave the plaintiffs an opportunity to file an amended complaint. The deadline for fact discovery (evidence derived from internal documents) is December 2001. Expert discovery (evidence derived from the deposition of witnesses) must be completed by March 2002. The pretrial conference is scheduled for July 16 of next year. The doctors and patients both have sought class status for their suits. Gaining class certification is crucial. If the separate suits aren't deemed similar enough to be tried together, the plaintiffs' attorneys have said they will stop further legal action. Moreno has deferred ruling on the issue of class status until discovery is complete.

In a statement, Aetna executives said they and the other plans had been able to show "tremendous differences" in the ways individual doctors are paid, and that it's only fair to look at each case separately. The statement continued: "Further investigation will establish that the plaintiffs' allegations are untrue and that any billing issues are best dealt with on an individual basis and not as an unwieldy nationwide class of hundreds of thousands of physicians who have differing contracts with insurers."

Should doctors resort to "anti-gangster" tactics?

Amid all the legal maneuvering, some experts maintain that the job of forcing changes in managed care policy rightly belongs to state legislatures and the US Congress. "Whatever the difficulties in determining how managed care operates, I can't imagine that our courts will be able to figure this out better than the HMOs and the doctors themselves, especially using standards under RICO designed for organized crime," says George Priest, professor of economics and law at Yale Law School. "That seems totally misguided."

But the doctors claim to have already followed Priest's advice—and to have run into a brick wall. "We've tried the legislative approach," say Kuffner. "We tried marching on the capitol. We tried sitting down at the table. We tried everything that was legal. Nothing worked."

Richard Epstein isn't buying it. "We're talking about exploitation from companies that, if they did what the doctors want, would all be bankrupt," the University of Chicago professor says. "The point of an HMO is to say that at times medical judgments will be trumped by financial considerations. The question is whether doctors or the finance guys get to decide who's going to make that decision."

It should be doctors, insists Paul Shanor of the Georgia medical association. "The HMOs put profit share before patient care," he charges. "If the HMOs provided appropriate care at the outset, health care costs wouldn't be rising as fast as they are now. Doctors aren't out to destroy the health care system in this country. But "if the HMOs are saying that providing quality, appropriate, medically necessary care will do away with HMOs in America, I say, so be it."

While lawyers for both sides are fully prepared to battle in court, possibly late next year, Wall Street expects the HMOs to open settlement negotiations well before then. Some observers view the doctors' legal maneuvers as an attempt to get the HMOs to take them seriously at the bargaining table. Before they sued, the doctors had been too fragmented to force the HMOs to deal with them as a unified force.

"Most investors think the patients' suit will be dismissed," observes David Shove, a health care analyst with Prudential Securities in New York. "The doctors' suit is more troublesome. Investors are assuming that it will be settled at some point. But right now, no one's near settling. The judge is trying to figure out how broad discovery should be. If it's fairly broad and the plaintiffs can find their smoking gun, I think the HMOs will go to the table pretty quickly and settle the case."

The doctors, as it happens, think they have a smoking gun: G. Wade Harper Jr., a former high-ranking executive at UnitedHealthcare in Florida. Harper claims he was fired for alerting United's corporate headquarters in Minnesota to questionable conduct in Florida. The plaintiffs hope that Harper will publicly corroborate the doctors' charges of predatory HMO business practices. "He's the highest-ranking HMO employee ever to testify against his employer," says Lamb.

The HMOs, while publicly vowing to relish their day in court, have already quietly begun to make some conciliatory gestures. Aetna is negotiating with doctors in several states; United and Humana may soon follow. The HMOs have curtailed incentive arrangements that give providers a bonus for keeping costs below a certain figure—a complaint in the patients' suit. And they have reduced the number of procedures that require physicians to obtain precertification from HMOs—the source of a beef by doctors.

*See "Hospital-stay guidelines: Just plain weird," Aug. 6, 2001.

The author is the former East Coast Editor of Medical Economics.

Doctors vs HMOs: Looking to the state courts and legislatures

In addition to the national lawsuits filed in Miami against insurers by doctors and patients, many smaller but still significant suits have managed care under siege.

Last February, 7,000 Connecticut doctors went to court against six insurers. The suits, for which the doctors are seeking class status, claim that the health plans routinely delay payments and approvals, and that contracts with doctors have been breached.

"We're suing them for violating the Connecticut Unfair Trade Practices Act," says Tim Norbeck, executive director of the Connecticut State Medical Society. "We want real doctors, not spin doctors, making medical decisions. This is a war, and we're in it to win."

Connecticut is also the scene of the only federal court action brought against managed care companies by a state on behalf of health plan enrollees. In September 2000, Richard Blumenthal, the state's attorney general, alleged that four of Connecticut's largest HMOs violated provisions of the Employee Retirement Income Security Act (ERISA) that require health plans to act solely in the interest of enrollees.

"We don't want a dime from the HMOs," says Blumenthal, who seeks class status for the suit. "We want to reform the industry."

In Massachusetts, doctors aren't seeking legal redress from HMOs. Instead, they're trying to work with the state legislature to enact managed care reform. Topping the agenda is Senate Bill 1813, which puts not-for-profit HMOs on the hook for refusing care that results in a malpractice suit against the doctor. Currently, only the doctor is liable, even when a health plan restricts his treatment options.

 

Neil Chesanow. Will managed care die in court?. Medical Economics 2001;17:30.