Judge drops last holdout HMOs from landmark class-action lawsuit

Physicians are considering an appeal. Despite the dismissal, doctors say the case, which involved settlements with other companies, has forced the industry to change.

By Amy Lynn Sorrel — Posted July 10, 2006

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Although a federal judge in June tossed out claims of unfair payment practices that more than 700,000 physicians brought against UnitedHealth Group and Coventry Healthcare, doctors said the long-running battle with the managed care organizations is far from over.

The judge's order in favor of the last two defendants in a class-action lawsuit that began in 1999 could leave the door open to future litigation against United and Coventry, according to the doctors' co-lead counsel, Archie Lamb.

Unlike earlier settlement agreements by other health plans initially named in the nationwide class-action lawsuit that accused 10 health plans of conspiring to reduce or deny reimbursement to the nation's doctors, United and Coventry "did not receive the global protection a court order does in terms of extinguishing lawsuits," Lamb said.

The federal racketeering lawsuit resulted from the consolidation of about 50 individual state and federal actions doctors and state medical societies filed across the country. Various claims accused health plans of breaking contracts with doctors and violating state prompt-pay laws, while taking part in a larger scheme to defraud physicians.

Doctors are considering an appeal to the 11th U.S. Circuit Court of Appeals. As part of their appeal, doctors are "exploring asking the judge for remand of our ... cases brought originally in state court, so we can continue to address the issues of unfair business practices," said Matthew C. Katz, executive director of the Connecticut State Medical Society.

"This is by no means over for CSMS, the doctors of Connecticut or the doctors of this country," Katz said.

In its ruling, the U.S. District Court for the Southern District of Florida in Miami found there was "insufficient evidence" to convince a jury that United and Coventry colluded with other insurers to manipulate claims processing software to downcode, bundle and underpay legitimate claims. Physicians had alleged the federal Racketeer Influenced and Corrupt Organizations Act had been violated.

The court acknowledged that, while it was not endorsing the alleged wrongdoing, any reform related to the "individual practices by the health maintenance organizations is beyond this court," Judge Federico A. Moreno wrote.

Doctors still believe the plans engaged in abusive practices. "We have been at this for a very long time, and we are convinced that the insurers have illegally and inappropriately delayed and denied payment under physicians' contracts," said David Cook, executive director of the Medical Assn. of Georgia, one of the first doctors' groups to file the lawsuit.

United and Coventry declined to comment for this story; however, the companies issued statements saying they were pleased with the ruling.

"Looking ahead, UnitedHealth Group will continue to focus on our overarching goal: working constructively with physicians and other partners to provide all Americans with greater access to affordable, quality health care," said United Chair and CEO William W. McGuire, MD.

Coventry also reiterated it was focused on "mutually beneficial relationships with physicians."

Lawsuit sparked changes

Although the court's decision might disappoint physicians, some industry experts say the case has ignited positive reform in doctors' relationships with health plans. The largest class-action lawsuit of its kind, the case was the first organized effort by doctors to take on managed care in the courts.

In the past three years, Aetna, Anthem Blue Cross Blue Shield, Cigna, HealthNet, Humana, Prudential Insurance Co. of America and WellPoint Health Networks, which now owns Anthem, settled for an estimated $384 million in reimbursements to physicians. This includes more than $200 million in lawyer fees. The firms did not admit wrongdoing.

The agreements also required a number of changes to the insurers' payment procedures, including mechanisms to report billing complaints, speed up payments and create more transparency in coding. Also, the Aetna, Cigna and WellPoint settlements resulted in an additional $40 million being dedicated to setting up three foundations with physician advisory committees. The foundations address quality-of-care issues and improvements to the health care system.

"It's hard to say this wasn't a landmark set of cases, having gone on so long and resulted in such large settlements. It's fair to say it has changed the face of the industry," said attorney James M. Jacobson, who specializes in managed care litigation at Holland and Knight in Boston.

The medical societies attest that the health plans that settled have improved relationships with doctors. "There are processes that have been put in place that eliminate friction between doctors and managed care plans by creating a process of communication and vetting of issues," the CSMS' Katz said.

A statement from Aetna spokeswoman Cynthia Michener said her company's settlement allowed executives to focus on business "without the distraction of a protracted lawsuit." Aetna is committed to adopting standards "for an 'efficient and fair' relationship with the physician community."

Some problems remain in ensuring that the plans continue to comply with the dictates of the agreements, said Texas Medical Assn. General Counsel Rocky Wilcox. WellPoint, for example, set up a claims process that has resulted in doctors getting their money slowly, he said.

"The companies that have settled do have a competitive advantage, so we have to be very vigilant in making sure they play by the rules, otherwise it will erode what we've accomplished," Wilcox said.

But some experts don't expect a positive effect.

"Ultimately, it may hurt consumers and businesses to the extent we are counting on physicians being in the network and everyone ends up paying a higher price for access," said attorney Susan Feigin Harris, a regulatory and health care policy expert at Baker Hostetler in Houston.

America's Health Insurance Plans, a national trade association, says courts are not constructive for resolving tensions in the health care system, and litigation puts up a barrier to communication.

"The more and more we see this kind of approach, we recognize that it's often very difficult for sectors in health care to deal with issues in silos," said AHIP spokeswoman Susan M. Pisano.

Still, as Judge Moreno hinted, doctors and experts agree that the case likely will prompt more systemic change through other mechanisms.

The American Medical Association, which has endorsed the medical societies' legal challenge, has advocated for legislative protections against managed care abuses and consolidation efforts that jeopardize patient care.

As with state prompt-payment laws, legislative changes have been a much more beneficial force for doctors, "and it can be more cost effective when compared with a case like this," Jacobson said.

To remain competitive, he added, "United and Coventry are going to have to step up to the plate and adhere to the best practices that were unearthed in the other settlements."

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In the judge's words

Below is the abstract from U.S. District Court Judge Federico A. Moreno's ruling in In Re: Managed Care Litigation:

After reviewing thousands of documents, there simply is insufficient evidence of the wrongdoing claimed -- i.e. agreeing with their competitors to defraud the doctors. The evidence submitted here falls short of that needed to trigger the Racketeer Influenced and Corrupt Orgnizations Act's remedial scheme ... In so holding, the court is not giving imprimatur to the defendants' actions or to the tremendous amounts of compensation received by their executives, described by some as exorbitant. But any reform related to executive compensation or individual practices by the health maintenance organizations is beyond this court. Those desiring changes in the way health care is provided in America must either look for remedies before Congress or allow the free market to dictate the results.

In a footnote to the last sentence of the abstract, Moreno wrote:

In that regard, the settlements with the other defendants will undoubtedly cause the remaining defendants to offer the physicians a similarly efficient and fair service in order to remain competitive, thus diluting their legal victory obtained by this court order.

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Case at a glance

In Re: Managed Care Litigation

Venue: U.S. District Court for the Southern District of Florida, Miami Division
At issue: Whether the nation's largest HMOs conspired to unfairly reduce or deny reimbursement to doctors. In June, the court dismissed claims against UnitedHealth Group and Coventry Healthcare Inc. Over the past three years, Aetna, Anthem, Cigna, HealthNet, Humana, Prudential and WellPoint settled claims against them; claims against PacifiCare Health Systems were dismissed.
Potential impact: Doctors say the managed care companies' abusive payment practices ultimately would put patient care in jeopardy, and that the settlements already have produced positive change. The health plans have admitted no wrongdoing and say they will continue to focus on a cooperative relationship with physicians.

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Company agreements

The seven-year litigation that physicians initiated against managed care companies has resulted in settlements that physicians say are improving relationships between the two sides. Those agreements with their estimated values are summarized below. More detailed information is available online (link).


Physician cash recovery: $100 millionPhysicians' foundation funds: $20 millionFunding for compliance and enforcement: $0Changes in business practices: $300 millionTotal physician damages: $420 millionAttorneys' fees: $50 million

Anthem & WellPoint

Physician cash recovery: $135 millionPhysicians' foundation funds: $5 millionFunding for compliance and enforcement: $0Changes in business practices: $250 millionTotal physician damages: $390 millionAttorneys' fees: $58 million


Physician cash recovery: $70 millionPhysicians' foundation funds: $15 millionFunding for compliance and enforcement: $0Changes in business practices: $400 millionTotal physician damages: $485 millionAttorneys' fees: $55 million


Physician cash recovery: $39 millionPhysicians' foundation funds: $0 millionFunding for compliance and enforcement: $1 millionChanges in business practices: $80 millionTotal physician damages: $120 millionAttorneys' fees: $20 million


Physician cash recovery: $40 millionPhysicians' foundation funds: $0 millionFunding for compliance and enforcement: $0Changes in business practices: $75 millionTotal physician damages: $115 millionAttorneys' fees: $18 million


Physician cash recovery: $0Physicians' foundation funds: $0Funding for compliance and enforcement: $22 millionChanges in business practices: $0Total physician damages: $0Attorneys' fees: $5 million

Note: Attorneys' fees were fees the court ordered the health plans to pay to physicians' attorneys.

Sources: link, state medical societies

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