Fla. HMO case moves forward; Aetna and CIGNA settle class actions; a judge pushes others. (National Law Journal)

By Ellen L. Rosen
November 10, 2003

A federal judge in Miami has given final approval to a landmark settlement between Aetna Inc. and the lawyers representing the nation's roughly 900,000 physicians over the insurer's payments and practices..

A federal judge in Miami has given final approval to a landmark settlement between Aetna Inc. and the lawyers representing the nation's roughly 900,000 physicians over the insurer's payments and practices.

CIGNA Corp. has reached a preliminary agreement over similar claims that the Philadelphia-based insurer hadn't adequately reimbursed its participating doctors.

While the two deals may affect some changes in the nation's health care system, their impact will not be known until the class action against the remaining defendants-including Anthem Inc., Coventry, Wellpoint Health Networks Inc., UnitedHealth Group Inc., Humana Health Plan Inc. and Pacificare Health Systems Inc.-is either settled or tried.

In the meantime, all the insurers continue to face uncertainty on another front, now that the U.S. Supreme Court has agreed to hear two cases that challenge the right of patients to file state court cases alleging health maintenance organization negligence in not paying for physician-recommended medications. The litigation continues against a backdrop of consolidation and heightened competition in the HMO industry.

Baby steps?

The class action litigation is multi-faceted and, not surprisingly, protracted.

In 1999, plaintiffs' lawyers sought to represent patients as well as physicians in separate class actions against the insurers over denial of claims and alleged inadequate payment. The patients' suit derailed when Judge Federico A. Moreno, a federal judge in Miami, certified only the doctors as a class, denying class status to the patients.

The defendants have appealed the doctors' class certification to the 11th U.S. Circuit Court of Appeals. That court refused to grant a stay while the appeal is pending. As a result, the cases moved forward and discovery proceeded.

Moreno, lawyers involved in the case say, is lighting a fire under the remaining parties by planning on trying the case next July. But he has also appointed Rodolofo Sorondo, a partner in the Miami office of Holland & Knight, as a special master, whose job is to mediate the case.

Sorondo, a former Florida state judge, declined to comment on the status of the negotiations among the parties. But lawyers in the case said, as one put it, "Don't expect to see a settlement anytime soon."

Aetna participated in some joint mediation sessions with Sorondo, but according to its attorney, Richard J. Doren, a partner at Los Angeles' Gibson, Dunn & Crutcher, the mediation did not resolve the case.

Aetna settled because Aetna's board decided it was time to put the litigation behind it, according to Lewis B. Kaden, a partner at New York's Davis Polk & Wardwell, who represents Aetna's board of directors.

Doren said the settlement has three components: a $100 million fund to reimburse doctors who claim they were paid inadequately, a nonprofit foundation funded with an initial $20 million and a payment of $50 million in attorney fees to compensate the more than 100 plaintiffs' lawyers who have worked on the case. The settlement also establishes what Doren terms "greater transparency" by disclosing to physicians through the company's Web site the codes used in determining payment. Doctors can also appeal denials to a newly formed committee.

Archie Lamb of Birmingham, Ala.'s Law Offices of Archie Lamb was co-lead counsel along with lawyers from New York-based Milberg Weiss Bershad Hynes & Lerach. He said that, previously, very few "if any doctors saw a list of the reimbursements, and companies could unilaterally change reimbursement amounts. Doctors were billing blind. Doctors will now have real-time access to his or her fee schedule, and company cannot change [the schedule] more than once a year."

Doren said the "settlement is consistent with Aetna's business objectives. It's a win-win for Aetna and the physicians, which can only benefit health care members." His views were echoed by Kaden.

"My own view is that the settlement was on the right terms," Kaden said. "These were cases that should be settled and the cornerstone should be rules and practices that are good for the company and good for the doctors. And that's the way we structured it."

Special Master Sorondo played a role in resolving CIGNA's case, said Eleanor Morris Illoway, a partner at Philadelphia's Harkins Cunningham, who was one of the attorneys representing CIGNA, although she refused to provide details.

CIGNA's settlement, filed with the court in September, is similar in approach to Aetna's. The claims against the Philadelphia insurer had taken a circuitous, and sometimes acrimonious, path from a state court in Illinois to Moreno's courtroom. The parties, Lamb said, ultimately rose beyond the original skirmishing to produce the settlement.

Lamb said CIGNA, like Aetna, will establish a nonprofit medical foundation, along with two funds for reimbursement. The first, he said, is capped at $30 million "for doctors who don't want to get records and want to file an easy claim from the fixed fund." The second fund, said Illoway, permits physicians to challenge previous determinations so long as they have supporting documentation. Claims under that unlimited fund are subjected to a more stringent standard. Attorney fees under the proposed CIGNA deal are set at $55 million.

Despite these two seemingly far-reaching settlements, the defendants who remain seem inclined to fight. Jeffrey Klein, a partner at New York's Weil, Gotshal & Manges who represents UnitedHealth, said, "This is essentially a payment dispute between managed care and doctors. It's not about quality of care." He seemed to take umbrage at the structure of the lawsuit-which invokes the Racketeer Influenced and Corrupt Organization Act, or RICO, to allege a nationwide conspiracy of insurers in setting practices and payments. The companies are, he says, "fierce competitors," not co-conspirators.

Even for Aetna and CIGNA, the settlements may provide only partial closure. On Nov. 3, the U.S. Supreme Court granted certiorari to two cases to determine if HMOs can be sued in state court for failing to pay for physician-recommended medications. The companies, fearing an avalanche of state negligence claims, argue that ERISA-the Employee Retirement Income Security Act-pre-empts such state suits.

Despite the multitude of litigation fronts, the insurers seem to view the cases as distractions, but not deterrents, to business. On Oct. 27, Anthem announced its plans to acquire Wellpoint for approximately $14.3 billion. That same day, UnitedHealth announced its plans to buy Mid Atlantic Medical Services Inc. for approximately $3 billion. Said Klein, "The litigation is not impacting the way the companies are doing business."

But the mergers are by no means a certainty and could themselves spawn antitrust litigation. The deals are likely to face state review, and according to U.S. Department of Justice spokeswoman Gina Talamona, the DOJ Antitrust Division is also "looking at both transactions."