Class-action lawsuit: Another setback for managed care

A physician win on a preliminary ruling in a major lawsuit is one more sign of managed care's once-infallible and now-failing immunity in the courts.

Editorial. Nov. 18, 2002. Additional information

A U.S. district judge's decision to grant class-action status to the plaintiffs in racketeering lawsuits filed against several major health insurers marks a significant blow to the managed care industry.

Aetna Inc., CIGNA Corp., Humana Inc., Foundation Health Systems Inc., PacifiCare Health Systems, Prudential Insurance Co., UnitedHeathcare and Wellpoint Health Networks Inc. could find themselves squaring off against as many as 600,000 physicians -- if the ruling sticks.

Judge Federico A. Moreno, of the U.S. District Court, Southern District of Florida, Miami Division, said he was granting class action status because the physician and medical association plaintiffs had proved that if what they are claiming is true, all doctors would be affected. They allege that health plans breached contracts and defrauded physicians in a variety of ways, including using automated systems to bundle or downcode claims, setting up bonus or incentive systems for claims employees and making medical necessity determinations based on nonmedical criteria.

The health plans, which deny the charges, already have appealed Moreno's ruling to the 11th U.S. Circuit Court of Appeals. They argue that there is "substantial weakness" in the judge's view that common issues will predominate at trial. The defendant health plans also claim that the magnitude of the relief sought raises the costs and stakes of the litigation, creating "improper coercive pressures" on them.

The appeal was not unexpected. Virtually every Moreno decision made in this case has been appealed. The stakes are too high for any other course of action.

But even as the managed care companies use every legal tactic at their disposal to delay, redefine or narrow the cases consolidated before Moreno, they also must face one fact: Their shield of armor is beginning to show some chinks.

For most of their existence, health care plans have been well protected by the Employee Retirement Income Security Act of 1974. Since courts traditionally allow federal law to preempt state statute, ERISA thwarted many an attempt to hold managed care accountable by both patients and physicians. That ERISA protection was deeply dented this year when the U.S. Supreme Court ruled in Rush Prudential HMO Inc. vs. Moran, et. al. that states can guarantee patients who are insured through employer-sponsored health plans a right to an independent, external review of managed care treatment decisions. At the same time, the court vacated a 5th U.S. Circuit Court of Appeals ruling that ERISA preempted a Texas law establishing independent review for patients who dispute health plan decisions to deny coverage of any medical procedure recommended by a physician. The Texas case, Corporate Health Insurance v. Texas Dept. of Insurance, is once again before the 5th Circuit.

The Supreme Court is poised for a second ERISA-related ruling this term when it examines whether state laws ensuring that qualified physicians and other health care professionals don't get shut out of health plans are preempted by the federal statute. Should the court knock a hole in ERISA twice in such short order, the health care landscape would indeed be significantly altered.

But the racketeering lawsuits remain one of the best bets for forcing health plans to make some important changes in their business practices. The plaintiffs believe the discovery process will bring to light a plethora of dirty dealings on the part of managed care companies. The mere idea that the plans might have to compensate 600,000 physicians only adds to their determination to build a strong case.

Lest the medical community get too excited, however, keep in mind that Moreno's ruling is just a step -- albeit an important one -- in a case that is far from resolved. At least now physicians can realistically hold out hope that should Moreno's class-action ruling stand and the plaintiffs win either a court judgment or a settlement that provides for remuneration and system change, the bell will begin to toll for managed care as we know it today.

OPINION

Class-action lawsuit: Another setback for managed care

A physician win on a preliminary ruling in a major lawsuit is one more sign of managed care's once-infallible and now-failing immunity in the courts.

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Additional information