| Managed
Care on Trial (The National Journal)
by Lois Jacobson & Marilyn Werber Serafini
September 7, 2002
Archie Lamb is a trial lawyer from Birmingham, Ala. Mostof the time, when
members of his profession meet with doctors, it's to face off over malpractice
allegations. In this case,however, Lamb is aggressively working on behalf
of physicians.And the case he's involved in-using the Racketeer Influenced
andCorrupt Organizations Act (RICO) to challenge the business practices
of the managed care industry-is reverberating in hospital wards and executive
suites nationwide.
Archie Lamb is a trial lawyer from Birmingham, Ala. Most of the time,
when members of his profession meet with doctors, it's to face off over
malpractice allegations. In this case, however, Lamb is aggressively working
on behalf of physicians. And the case he's involved in-using the Racketeer
Influenced and Corrupt Organizations Act (RICO) to challenge the business
practices of the managed care industry-is reverberating in hospital wards
and executive suites nationwide.
In 2000, the California Medical Association retained Lamb to sue almost
a dozen major health maintenance organizations on
the grounds that they engage in "fraudulent practices" made
possible by "conspiratorial efforts." Over time, other plaintiffs
joined in, including the professional medical societies of Florida, Georgia,
Louisiana, and Texas-groups that represent a combined 100,000 physicians.
Lamb's suit was sent to the Southern District of Florida to be consolidated
with more than a dozen similar cases, including lawsuits initiated by
several other state medical societies and class actions filed by individual
doctors. A RICO suit filed on behalf of patients is proceeding on a separate
track in Miami.
As a result of this legal flurry, some of the biggest names in the HMO
business are now on the hot seat: Aetna; Anthem Blue Cross Blue Shield;
Blue Cross/WellPoint; Cigna; Coventry Health Care; Foundation/Health Net;
Humana Health Plan; PacifiCare Health Systems; and UnitedHealthCare. And
their seat got quite a bit hotter on July 30, when U.S. District Court
Judge Federico Moreno lifted a stay on Lamb's case-a move that gives the
plaintiffs a green light to depose HMO executives and other witnesses.
The physicians' allegations, if proven in court, could make the HMOs liable
for treble damages and the plaintiffs' attorney fees.
Specifically, the suit charges that the HMOs "routinely and improperly
manipulate the coding practices which have formed the basis for physician
reimbursement from third-party and government payers for decades."
HMOs also "knowingly and systematically deny and delay payments due
physicians and profit from the monies wrongfully retained," the suit
alleges.
Based on 30 depositions and tens of thousands of documents already in
the plaintiffs' possession, Lamb-a veteran of lawsuits against makers
of asbestos, breast implants, and tobacco-called the HMO case "the
clearest case of fraud I've ever been involved in. This is not like a
mystery we still have to prove," he told National Journal. "We
can prove it now."
The suits have prompted a war of words, as both sides court reporters
and newspaper editorial boards to make their case.
The picture Lamb paints is of an insurance industry unconstrained by
regulators who lack enforcement powers, investigatory resources, or both.
Some HMOs, he said, routinely "downcode" more-intensive visits
to the doctor as less intensive, thus lowering reimbursement rates. And
many HMOs fail to provide doctors with a fair system for independent reviews
of denied or partial payments, he said.
Moreover, Lamb said, while patients are sometimes able to turn to state
insurance commissioners for help with complaints,
doctors rarely find relief there. And even when the state insurance commissioners
agree there's a problem, there's often no effective enforcement mechanism
to require insurers to rectify it, Lamb said.
"The brilliant thing about the HMOs' strategy is that they screw
doctors for $50 or $100 a day, and to fight it, the doctor has to hire
a lawyer and take time out of their practice," Lamb said. "It's
death by a thousand cuts. Certain doctors are always going to fight city
hall, but if you do a cost-benefit analysis, most physicians aren't going
to challenge it."
Karen Ignagni, the president of the American Association of Health Plans,
which represents managed care companies, said that the industry is willing
to address physicians' concerns. But she asserts that waves of lawsuits,
especially class-action suits, are counterproductive. "Right now,
we have an explosion of health care costs," she said. When the cost
of the new litigation is added, "the cost to health insurers is enormous."
The question, Ignagni said, is how best to address the issue of physician
reimbursement. Already, she said, appeals can be handled by paid arbitrators.
Indeed, she argues that the problem often originates with medical providers.
She cited an April report that the accounting firm PricewaterhouseCoopers
wrote for her organization. It blames fraud and abuse for 5 percent of
the increase in health insurance premiums from 2001 to 2002. The study
cites a 1999 report by the Health and Human Services Department that set
the annual amount of improper payments from coding errors at $2 billion
to $3 billion a year. "The No. 1 problem in terms of claims not getting
paid," she said, "is that they're incomplete and, in many cases,
have information that is wrong."
The focus on the commercial aspect of HMOs in the courtroom is relatively
new. Previous plaintiff lawsuits against HMOs often dealt with the denial
of specific services to individual patients, especially children who died
or were injured when certain treatments were not performed.
The antagonism between physicians and insurers has been growing steadily.
Since the late 1980s, when employers increasingly turned to managed care
to cope with escalating health care costs, many doctors and hospitals
have complained that they lack the leverage to negotiate favorable contracts
with HMOs and preferred-provider organizations.
Physicians cited instances in which insurers presented them with take-it-or-leave-it
contracts. In some cases, when a significant portion of a doctor's patient
load received health insurance from a particular insurer, the doctor felt
trapped into signing up. Often, doctors found that they were required
to participate in all of an insurer's health plans, even ones that they
say didn't cover costs. Doctors also complained that they felt pressured
into skipping expensive tests, even when they believed they were necessary.
By the late 1990s, hospitals began negotiating aggressively for more-favorable
contracts. However, because doctors often practice in small groups or
independently, many have found it more difficult to fight large insurers.
This is a major reason physicians sought legislation in the late 1990s
that would have altered antitrust laws to allow them to collectively negotiate
contracts with insurers. But the bill never passed the Senate. Another
measure that could have eased the situation a bit-the legislation known
as the patients' bill of rights-has been sitting idle in Congress for
more than half a decade. Although the measure is geared toward helping
patients, doctors have tended to support it because it offers them greater
flexibility in treating patients, whereas now they can be constrained
by the language of their contracts.
A major victory by the plaintiffs could have a profound impact on patients,
observers say. "It's a tricky balance," noted Larry Levitt,
vice president of the Henry J. Kaiser Family Foundation, an independent
organization that sponsors health- policy research. Because costs are
"unquestionably a paramount issue right now," Levitt said, a
win for doctors would almost certainly mean higher health insurance premiums.
That could make insurance too expensive for some individuals and employers
and could result in an increase in the uninsured population, which currently
numbers 39 million. Indeed, Ignagni charged that lawyers would "end
up with a great deal of money that would otherwise go toward health care."
In the absence of congressional guidance from a patients' bill of rights-which
appears dead in the current congressional session-trial lawyers seem to
be filling the vacuum, Levitt said. Even as the doctors seek to utilize
RICO, consumers have begun testing the usefulness of both state and federal
laws, including the Employee Retirement Income Security Act. Although
disputes over denial of benefits aren't covered by ERISA, cases about
quality of care do fall within the purview of many state laws.
"Attorneys have been creative in framing these issues as 'quality
of care,' " Levitt said. "And they have, in some cases, been
winning." Indeed, he suggested that if such cases succeed, more may
follow. "It's like bees to honey," he said.
The 32-year-old RICO law was commonly used in its early years to attack
gangland crime. But more recently, RICO has been
used in everything from divorce proceedings to actions against political
protest organizations. Legal experts say it was only a
matter of time before lawyers targeted HMOs.
"The sad fact is no, I'm not surprised," said Robert S. Litt,
a former top-ranking official in the Clinton Justice Department who is
now a partner at Arnold & Porter, a Washington- based law firm. "Almost
any breach of contract can be dressed up as mail or wire fraud."
Litt added that RICO cases often result in a settlement before trial to
avoid extensive litigation. Lamb said that while he fully expects the
case to go to trial-most likely in the fall of 2003-it's possible that
some of the HMO companies will want to settle.
Ignagni suggested that it was Lamb who sought out the doctors, as opposed
to the other way around. "Archie Lamb sent a paper to medical societies
and tried to encourage them to jump on to these suits, claiming that there
is no risk to them, no cost to them, and it would be very advantageous,"
she said. After big wins against tobacco interests, she added, plaintiffs'
attorneys were in search of a fresh industry to target.
Although many physicians are joining the suit, some feel ambivalent,
Levitt said. On the one hand, physicians are criticizing trial lawyers
for aggressively pursuing malpractice claims against them, on grounds
that such cases are raising patients' health care costs. At the same time,
they're pursuing their own cases against the health insurance industry
that could result in higher premiums-or no insurance at all-for their
patients.
"Who would have thought five years ago that doctors would be working
side by side with trial lawyers, or that physicians
would be working with health plans on malpractice issues?" Levitt
said. "Strange bedfellows complicate this a bit."
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