By ALISSA J. RUBIN, HENRY WEINSTEIN, Times Staff Writers
WASHINGTON--In pursuit of big damage awards at a time when public opinion is running against the managed health care industry, attorneys have begun to file a wave of lawsuits charging major health insurers with failing to give consumers the care they paid for.
Three suits were filed this week--one against Humana Inc. and two against Aetna/US Healthcare--and at least a dozen more are in the works, according to attorneys involved in the suits. All seek court approval to be treated as class-action lawsuits representing entire patient populations. Some of the lawyers preparing the suits are the same ones who have sued the tobacco industry and they are being joined by several firms that specialize in class actions.
The new front against managed care comes as the industry is already trying to cope with tough new laws in California and many other states and to stop Congress from extending patients' rights to all Americans in federally regulated plans. The House on Thursday passed a stronger patient protection bill than is on the books in most states.
"The news about this new strategy of filing class-action lawsuits has certainly sent shivers down the spines of a lot of players in the health-care arena," said Frank McArdle, a principal at Hewitt Associates, a consulting firm specializing in employee benefits. "This is a big new development."
Once Shielded by Federal Laws
In the past, several federal laws had effectively shielded the health insurance industry from lawsuits by individuals and groups. However, recent federal court rulings, combined with some novel approaches to attacking the industry in court, have at least raised the possibility that the companies could be vulnerable.
New York University law professor Stephen Gillers characterizes the health insurers as "ripe and juicy" for the trial lawyers. Industry spokesmen respond that they will not succumb without a fight and will call on some of the nation's biggest law firms--including Los Angeles' O'Melveny & Myers--to defend them.
"We're going to vigorously defend ourselves . . . and we believe we will be on the prevailing side when this is done," said Dick Brown, director of corporate communications for Humana of Louisville, Ky., which was sued earlier this week. The company insures 6.2 million beneficiaries. "We are confident that these allegations will be shown for what they are--spurious charges designed to line the pockets of the trial bar," said Susan Pisano, a spokeswoman for the American Assn. of Health Plans, which represents more than 1,000 health plans nationwide.
Such lawsuits can be extraordinarily lucrative. In recent years law firms pursuing tobacco litigation have been awarded around $10 billion in fees.
The health insurers accused the trial lawyers of aiming to destroy the entire HMO system. "The lawsuits are outrageous. . . . They are attacks on the managed care system," said a statement by Aetna, which insures 18.3 million people nationwide.
The lawyers respond that managed care companies do not disclose whether they reward doctors for withholding costly treatments and offer other financial incentives to diminish the cost of the care the companies deliver. As a result, they say, patients cannot make informed choices about which plans to enroll in or whether to seek care outside of a plan.
"This is not an attack on the concept of managed care," said Jerome Marcus, one of the lawyers who sued Aetna earlier this week in Philadelphia. "I'm not saying that managed care is bad or that it necessarily produces a level of care that is not tolerable," he said. "All we're saying is that . . . when you buy membership in an HMO, information is not disclosed about the incentives to your doctors to deviate from their independent medical judgment in favor of reducing the cost of medical care." The attorneys variously allege that health plans have blacklisted individual physicians or physician groups, retaliated against physicians who have placed patients' interests first, violated state antitrust laws and violated the federal Racketeer Influenced, Corrupt Organizations Act. The suits filed so far accuse HMOs of failing to meet their duty under federal law to disclose to subscribers their financial arrangements with physicians and their criteria to deny claims and services.
The suit filed against Humana alleges that the company gave financial incentives to doctors for denying coverage and to claims reviewers for rejecting claims.
'Cost Was the Dominant Factor'
"The crux of our case is that Humana failed to accurately disclose to subscribers the criteria for their medical decisions," said Joseph M. Sellers, one of the lawyers who brought the suit. "Therefore, people were charged a premium based on the services that were medically necessary whereas, in fact, they were being given services under incentive programs where cost was the dominant factor."
Because of the variety of allegations, the plaintiffs in the suits could range from patients to doctors to even clinics.
Lawyers familiar with mass litigation say HMOs need to take the threat seriously. The tobacco companies, after long vowing never to settle the suits against it, ended up agreeing to pay $246 billion in 1997 and 1998 in the cases brought against them by the states.
"After what has gone on with tobacco, you can't dismiss this," said Ross Stromberg, who heads the health care practice at the Los Angeles office of Jones, Day, Reavis & Pogue, one of the nation's largest law firms and the national counsel for cigarette manufacturer R.J. Reynolds.
Chilling Prospect of 'Smoking Gun' Search
The mere threat that plaintiffs' lawyers could start going through company files in the discovery process would be chilling for some firms, said Stromberg. "Who knows what smoking guns are in the corporate records?" he said.
One difference between the lawsuits against health insurers and tobacco companies is that most jurors have a stake in the health care system. "Juries are composed 75% of people who don't smoke," said John Coffee, a law professor at Columbia University. As a result, he said, many jurors were skeptical when smokers claimed they had been unaware of the hazards of smoking.
In health care, Coffee said, "everyone wants to get good medical care and are distressed to learn they are getting less than the best. . . . Juries get outraged when they hear about decisions [not to provide treatment] based on nonmedical criteria."
The lawyers involved are a diverse bunch, running the gamut from rural practitioners to big-time plaintiffs' lawyers.
One of the lead firms in the case filed against Humana and the case filed this week in Philadelphia against Aetna/US Healthcare is Boies & Schiller, whose lead lawyer, David Boies, represented the U.S. Justice Department in its antitrust lawsuit against Microsoft Corp. The point man working on the case at the firm is Steven Neuwirth, formerly a White House lawyer in the Clinton administration.
Sellers, co-counsel in the case against Humana, is a partner at a sizable Washington litigation firm that brought a class-action lawsuit successfully alleging racial discrimination at Texaco.
Marcus, who is co-counsel in the Philadelphia case against Aetna, is with Berger & Montague, a firm known for its expertise in class-action suits that was involved in the school asbestos cases and the fen-phen diet pill case. Marcus was one of a handful of lawyers who helped propel the Paula Corbin Jones lawsuit along behind the scenes and brought Linda Tripp to the attention of independent counsel Kenneth W. Starr.
Richard Scruggs, whose Mississippi firm filed a separate suit against Aetna in federal court in Hattiesburg, Miss., this week, was the impresario of the national assault on the cigarette manufacturers, recruiting lawyers and state attorneys general from around the country. His HMO suit filed this week suggests he is tapping lawyers from California to South Carolina. Already involved in one case and preparing half a dozen others is the newly formed national firm called Herman Middleton Casey & Kitchens, an amalgam of firms based in New Orleans, Savannah, Ga., San Diego and Jackson, Miss., all of which have won major verdicts for plaintiffs in a variety of cases.
Russ Herman of New Orleans, one of the firm's lead partners and former president of the Assn. of Trial Lawyers of America, noted the litigation has created unusual partnerships against the HMOs. "We have doctors as clients," he said. "This is the first alliance I have seen between doctors and consumer trial lawyers in my 35 years of practice."