THE TRIAL BAR'S HMO RACKET
Trial Lawyers, Inc.'s smooth talkers
paint hmos as gangsters, and cash in on subscriber dissatisfaction.
Essential to Trial Lawyers, Inc.'s business model is its constant search for new products—and new villains. Lately cast in the role of the
heavy are managed-care providers such as health maintenance organizations, insurers that work to regulate the dispensing of health
care by channeling subscribers into their approved networks of specialists and influencing the selection of treatment options. Once seen as a
fulcrum for health-care reform, HMOs have become—along with drug companies—an industry that Americans love to hate, thanks in no small
part to the litigation industry's propaganda machine. Homing in on the public's disenchantment with HMOs, lawyers have managed to all but
decimate the cost-control tools that are at the heart of the benefits that managed care confers on the health-care system.
Treating Broken Legs with Brain Surgery
In 1993, Memorial Sloan-Kettering Cancer Center in New York City sued Empire
Blue Cross Blue Shield for $12 million, including $10 million in punitive damages,
for refusing to pay for bone-marrow transplants for breast-cancer patients,
despite the fact that the treatment was unproven.
Later that year, a California jury awarded $89.3 million, including $12 million
for emotional distress, to the family of a deceased woman whose HMO declined
to pay for a similar treatment. Thus rebuked, insurers
started routinely doling out $100,000 per treatment for bone-marrow therapy
for breast-cancer patients—an estimated 30,000 women received the treatment
during the 1990s. Insurers finally stopped providing
the treatment in 1999—after wasting $3 billion—when four separate studies proved
the treatment to be a failure, and the lone South African study that suggested
effectiveness was exposed as having been based on falsified data.
The suits against HMOs for refusing to cover speculative bone-marrow treatments
were just the beginning of Trial Lawyers, Inc.'s all-out assault on medical
cost-control measures. In the late 1990s, the litigation industry began to leverage
its powerful government-relations divisions in states such as Texas and California
to enact new "patients' rights" laws. These statutes
typically created direct causes of action against HMOs for "negligent misconduct"—a
catchall phrase that made managed-care providers not only liable for treatment
and non-treatment decisions but also for any medical malpractice of doctors
covered under the plan. Thus emboldened, trial lawyers
increasingly turned subscribers' gripes into lucrative lawsuits.
Fortunately, the United States Supreme Court last year shut down this particular
trial-lawyer profit stream when it ruled that the Employee Retirement Income
Security Act preempted such state laws. The Court
unanimously determined that Congress had set up clear national rules that funneled
aggrieved patients into federal courts, where they could recover only the cost
of treatments denied—not punitive and other damage awards.
Who's the Racketeer Here?
Trial Lawyers, Inc.'s other big assault on the HMO industry used the riskier
but potentially more lucrative tactics the plaintiffs' bar honed to a science
in its wars against Big Tobacco. Beginning in 1999, plaintiffs' lawyers have
mounted some three dozen class actions against HMOs under the federal anti-racketeering
RICO statute that allows for treble damages—all the time insisting that their
real motive is to change the managed-care industry's alleged moneygrubbing ways.
The biggest of these suits was led by Dickie Scruggs (pictured left), the Mississippi
lawyer who masterminded the state lawsuits against tobacco companies, and David
Boies, the litigator of Bush v. Gore fame. Their massive
class action, consolidated as In re Managed Care in U.S. District Court in Miami,
alleged that ten HMOs committed fraud by, among other things, cheating doctors
out of their rightful fees and delivering inferior health care because of their
undue attention to the bottom line. The potential
damage to the industry—and to the public, which will ultimately pay the price
in higher premiums—is mind-numbing. Brought on behalf of 600,000 doctors and
145 million subscribers, the suits seek disgorgement of profits, recovery of
part of subscribers' premiums, and the treble damages allowed by RICO.
In 2002, the court threw out the subscriber claims of substandard care as too
speculative, dealing Scruggs and Boies a painful rebuke.
But the court allowed some of the doctors' claims to go forward, under the leadership
of attorneys including the Trial Lawyers, Inc. securities litigation powerhouse
Milberg Weiss. Wary of the resentful juries they would
likely face if the cases went to trial, some insurers have settled, including
Aetna and Cigna—who in 2003 forked over $470 million and $540 million, respectively—handing
Trial Lawyers, Inc. a major victory—and over $100 million in legal fees.
The cost of family coverage has
soared a whopping 59 percent
since 2000, making it increasingly
unaffordable for employers.
Those settlements are sure to spawn more lawsuits, especially against smaller,
regional HMOs and against other types of managed-care organizations, such as
prescription-benefit managers. Dentists have already piled on, having filed
a class-action suit in 2001 in Miami federal district court alleging RICO violations
against numerous HMOs. Aetna, for one, settled with
the 147,000 dentists last July, agreeing to speed up claims payments and reduce
administrative requirements, among other things, as well as ponying up $5 million
for the dentists, the American Dental Association Foundation—and their lawyers.
The Costs of HMO Regulation by Litigation
The real cost of litigation against HMOs is borne by the average consumer. Managed-care organizations are nothing more than private insurance
providers. Their treatment decisions, while often controversial, are the only mechanism of imposing cost discipline on health-care provision
when consumers and their doctors do not directly bear the cost of procedures.
In the face of the litigation industry’s charges of HMO profiteering, managed-care
companies increasingly relaxed the guidelines that had kept a lid on costs.
The court-approved settlement with Aetna specifically "requires changes and
commitments in Aetna's business practices," policy modifications estimated to
cost at least $300 million.
The result? For the past four years, the cost of health insurance has risen
annually between 10.9 percent and 13.9 percent, five times faster than inflation
and wage growth. The cost of family coverage has soared
a whopping 59 percent since 2000, making it increasingly unaffordable for employers.
Indeed, between 2001 and 2004, the percentage of workers who get health-care
insurance through their employers dropped from 65 percent to 61 percent, according
to the Kaiser Foundation Employer Health Benefits 2004 Summary.
Much of the drop took place in the small firms that employ the majority of American
workers and where medical coverage fell from 68 percent to 63 percent.
Though review of HMO treatment decisions might be at times appropriate, such oversight should not be in the hands of lay juries liable to be
swayed by the emotional pleas of smooth-talking, self-interested trial lawyers. Should the litigation industry's assault on managed-care providers
continue to succeed, the tragic cost will be less affordable health care for most Americans.
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200. See Cheryl P. Weinstock, Lawyers Debate the Insurability
of Bone-Marrow Transplants, N.Y. Times, Mar. 20, 1994, at 13LI, 18.
201. See Erik Eckholm, $89 Million Awarded Family Who Sued H.M.O.,
N.Y. Times, Dec. 30, 1993, at A1.
202. See Gina Kolata & Kurt Eichenwald, Insurer Drops a Therapy for
Breast Cancer, N.Y. Times, Feb. 16, 2000.
203. See id.; Trudy Lieberman, Covering Medical Technology, Colum.
Journalism Rev. (September/October 2001), at http://www.cjr.org/year/01/5/lieberman.asp.
204. See Jill S. Brown, Managed Care Enrollees Gain Ground, AARP
Bulletin, Feb. 2002, available at http://www.aarp.org/bulletin/yourhealth/a2003-08-05-managedcare.html.
205. See, e.g., Tex. Civ. Prac. & Rem. Code Ann. § 88.002 (2004) ("A
health insurance carrier, health maintenance organization, or other managed
care entity for a health care plan . . . is liable for damages for harm to an
insured or enrollee proximately caused by its failure to exercise such ordinary
care. . . . [and] is also liable for damages for harm to an insured or enrollee
proximately caused by the health care treatment decisions made by its: (1) employees;
(2) agents; (3) ostensible agents; or (4) representatives.").
206. See Aetna Health Inc. v. Davila, 542 U.S. 200 (2004).
207. See id.
208. See Beck, supra note 37.
209. See id.
210. See In re Managed Care Litigation, MDL No. 1334, 2003 WL
22850070 (S.D. Fla. Oct. 24, 2003).
211. See Beck, supra note 37.
212. See id.
213. See id.
214. See id. In addition to Aetna and Cigna, WellPoint, Prudential, and
HealthNet have settled classaction RICO claims by physicians. Humana, PacifiCare
Health Systems, UnitedHealth Group, Anthem, Blue Cross Association, and Coventry
Health Care remained in litigation over RICO claims when this publication went
215. See James Berry, American Dental Association, Aetna Settles Claims
with Physicians (May 23, 2003), available at http://www.ada.org/prof/resources/pubs/adanews/searchnews.asp.
216. See MedicoUnlimited Healthcare News, Aug. 18, 2003, at http://www.medicounlimited.com/News.htm.
217. See 2003 WL 22850070, at *3.
218. See Kaiser Family Foundation & Health Research and Educational Trust,
Employer Health Benefits: 2004 AnnuaL Survey 1 exh.A (2004).
219. See id. at 2.
220. See id. at 1.
221. See id. at 5.