Night Writer:Wall St Jour: 3 Ways to shake down an HMO.
Three Ways to Shake Down an HMO
Jan. 3, 2000
By Collin Levey, a writer on the Journal's
editorial page.
The trial lawyers are at it again. Last week, while
President Clinton was announcing his latest scheme to
manage health care costs by imposing price controls on
prescription drugs, his cronies at the plaintiffs bar were
doing their best to put employer health insurance plans in
jeopardy. That, after all, would be the endgame of the
civil lawsuits being brought against HMOs.
Still cruising on the tobacco afterburners, law firms like
Ness Motley and Scruggs Millette have trained their
sights on the managed care industry, hoping to ride a
similar wave of political angst over medical costs all the
way to the bank.
Here, as with the tobacco and gun suits, the legal merits
of the cases are hardly the issue. But for the record, the
plaintiffs lawyers have filed under three statutes: the
Racketeer Influenced Corrupt Organization law (RICO),
the Employee Retirement Investment Security Act
(Erisa)--and a little California law called 17200. As
George Priest, professor at Yale Law School put it
recently, "The basic thesis of these lawsuits is that to
apply cost structures to care creates incentives that are
inappropriate and therefore constitute fraud." In other
words, if you are an HMO, you're guilty. Case closed.
As an academic exercise, we can still look at the
statutory basis of these suits.
RICO:
Under RICO defendants are forced to pay treble
damages, a tantalizing prospect for the trial lawyers.
With class action suits filed on behalf of millions of an
HMO's enrollees, the trial lawyers are hoping the
numbers are staggering enough to strongarm the HMOs
into settlements. Richard Scruggs hinted the other day
that he hopes these cases will never see the inside of a
courtroom.
RICO was originally written to prosecute organized
crime. But because it was considered not very nice to
specifically target a certain class of gangsters, the law
was vaguely written, tramping a path for the abuses now
taking place. The complaints lodged against the HMOs
allege the presence of a "conspiracy," though in past
decisions courts have ruled that relationships with
subsidiaries do not fall under the conspiracy umbrella.
Nevertheless, the trial lawyers don't really care that
these "novel legal theories" are unlikely to hold up in
court. In September, Maio v. Aetna, the RICO suit that
was hoped would be a model run, was dismissed by a
federal district judge in Pennsylvania. The suit alleged
that all six million or so people currently receiving their
medical treatment from Aetna were the victims of a vast
fraud. Writing in the dismissal, Judge John Fullam
remarked that the "vague allegation that 'quality of care'
may suffer in the future is too hypothetical an injury to
confer standing upon plaintiffs."
With the other RICO suits in the mill, the trial lawyers
are doing their best to use the court of public opinion and
the threat of complete financial meltdown to get the
HMOs to settle. Since October, trial lawyers have
sought to create a market selloff of managed care stocks
in order to force out-of-court settlements.
Mr. Scruggs has been on the front lines of the
stratagem--cozying up to analysts at Morgan Stanley and
Prudential, as well as popping up on conference calls for
institutional investors to educate them about the
potentially dire outcome of the lawsuits. "If HMO
investors were smart," he said recently, "they'd lean on
their companies to see if we can work something out."
Since the suits were announced, most of the managed
care stocks have slumped to half their 1999 highs.
Erisa:
Erisa is a federal law that governs the
relationship to HMOs of people who receive their
medical benefits through their employers. Because it
preempts civil suits, it has been cited by critics as a
"loophole" that has prevented people from recovering
damages from their providers.
So instead the trial lawyers have wrapped their claims
around the presence of a fiduciary relationship under
Erisa--that the HMO is obliged to act in the best interest
of its members and, they argue, that any effort to cut costs
is directly contrary to that responsibility. That theory
found one taker in the Seventh Circuit Court of Appeals
in Chicago, which held that by issuing any systemwide
guidelines to reduce costs, the HMOs have breached
their fiduciary responsibility to their clients. That
decision is now awaiting a hearing before the U.S.
Supreme Court.
If the Supreme Court overturns the Seventh Circuit, the
trial lawyers are counting on a legislative alternative. In
recent months, a series of bills--from the Patient's Bill of
Rights to the Norwood-Dingell bill--have tried to
dismantle ERISA's protections, to widen the road for
HMO lawsuits.
If the current wave of Erisa actions is successful, the
88% of people who get their health coverage through
their employers stand to lose their benefits. Under
Norwood-Dingell, which passed the House in October,
employees could sue their employers for medical
malpractice--a condition that would be a death sentence
for the current system. Tom Donnelly, president of the
U.S. Chamber of Commerce, said recently that if
companies are held liable for the decisions of HMOs,
the only sane thing would be for them to "get out of the
health care business."
The shotgun approach:
Trial lawyers are plumbing
state law books for other grounds on which to sue. In
California, cases have been filed alleging that
managed-care organizations, by not publicizing the
incentive structure used to keep costs down, are guilty of
false advertising. The law, known as 17200, has become
such a hit in the plaintiffs bar that a recent trial lawyers
convention offered a seminar on "'How Business and
Professions Code 17200 Can be a 'Value Added'
Component of Your Litigation and How Those Claims
Can be Settled." Texas already has a right-to-sue law for
people unhappy with their HMOs, and Congress has
been tinkering with the same formula in its Patient's Bill
of Rights.
Of course, all these efforts have the effect of raising the
cost of providing health-care coverage. More people are
already without health insurance today than at the lowest
point of the last recession.
Swelling the ranks of the uninsured is a promising way
for Al Gore and his ilk to garner support for the next run
at HillaryCare. The bigger the crisis, the louder the
howls for a system more like, say, Canada's. The same
Democrats who want to go after HMOs for controlling
costs are ready to socialize health care and control drug
prices. There are difficulties with every system but the
one thing that's certain is that a federal health-care
system would be far more onerous for patients than
anything managed care could dream up. |
