Former Insider Helps in a Slew ofÿLawsuits Against HMOs:
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Former Insider Helps in a Slew ofÿÿÿÿÿÿÿÿÿ Nov. 27, 1999
ÿ Lawsuits
ÿ Against Health-Maintenance
ÿ Organizations
ÿ By PHILIP CONNORSÿ
ÿ Staff Reporter of THE WALL STREET JOURNAL
ÿ LOUISVILLE, Ky. -- For high-profile plaintiffs'
ÿ attorneys suing the managed-care industry, the path to the
ÿ courthouse leads through the home of Linda Peeno.
ÿ A team of lawyers headed by David Boies, the
ÿ government's lead attorney in its antitrust suit against
ÿ Microsoft Corp., visited Dr. Peeno in January and later
ÿ signed her to a $250-an-hour consulting contract. In
ÿ October, they filed a suit seeking class-action status
ÿ against Dr. Peeno's former employer, Humana Inc.
ÿ Before suing Aetna Inc. last month, lawyers associated
ÿ with Richard Scruggs, whose small Pascagoula, Miss.,
ÿ firm earned hundreds of millions of dollars suing the
ÿ tobacco industry, flew to Louisville for a two-hour
ÿ meeting with Dr. Peeno.
ÿ A physician and former insurance-claims reviewer, Dr.
ÿ Peeno knows managed care from the inside. In recent
ÿ years she has been remarkably successful as an expert
ÿ witness in more than 20 suits brought by individuals
ÿ against their health-maintenance organizations. Now the
ÿ class-action attorneys are saying she could be critical to
ÿ the success of their cases, too.
ÿ "Had she not been speaking out, articulating the
ÿ problems, it would have been difficult to come up with
ÿ the legal theories that underlie our case," says Hiram
ÿ Eastland, a Greenwood, Miss., lawyer in the Scruggs
ÿ group.
ÿ Dr. Peeno has testified repeatedly that HMOs promise
ÿ coverage based on medical need but that they actually
ÿ use various strategies to put cost savings first. The new
ÿ wave of class actions allege that this discrepancy
ÿ amounts to fraud. The theory has yet to be tested in court.
ÿ But because the suits seek to represent millions of HMO
ÿ members, they escalate the pressure on the plans to treat
ÿ patients more generously or risk massive court
ÿ judgments.
ÿ The companies say they haven't done anything wrong and
ÿ will vigorously defend themselves. As for Dr. Peeno,
ÿ lawyers for several HMOs say managed care has
ÿ changed since she last worked for an HMO, in 1990.
ÿ Noting that she still maintains health coverage with
ÿ Humana under her husband's plan, Humana spokesman
ÿ Tom Noland adds, "It's not very credible for her to
ÿ voluntarily continue to be a member of a plan she
ÿ criticizes." She says she needs insurance and doesn't
ÿ have a choice about which plan her husband's employer
ÿ uses.
ÿ Dr. Peeno's home on a quiet street here is piled with
ÿ documents gleaned from the suits she has testified in. A
ÿ 1995 internal Humana memorandum, for example, says
ÿ case managers can earn bonuses of up to $750 per month
ÿ by keeping the number of days members are hospitalized
ÿ below set goals. In a 1995 report prepared for Humana,
ÿ the consulting firm Coopers & Lybrand recommended
ÿ that Humana adopt stricter medical-necessity guidelines
ÿ that had been developed by an actuarial firm.
ÿ Mr. Noland acknowledges that Humana paid bonuses
ÿ and uses the guidelines. "This is what the managed-care
ÿ industry does," he says.
ÿ Earlier this week, the Scruggs group filed five new suits
ÿ seeking class-action status against HMOs. Mr. Eastland
ÿ says Dr. Peeno is so vital to the group's strategy that he
ÿ suggested she sign a contract to work exclusively with
ÿ his team, an offer she refused. Nevertheless, "we plan to
ÿ have enough work to keep her busy full-time," Mr.
ÿ Eastland says. Indeed, when Mr. Scruggs himself first
ÿ appeared on ABC's "Good Morning America" to talk
ÿ about his lawsuits, he went prepared with talking points
ÿ drafted by Dr. Peeno.
ÿ Impressive Record
ÿ Dr. Peeno's record in cases brought by individuals is
ÿ impressive. In two cases in which she testified, plaintiffs
ÿ won verdicts totaling $64 million, though both are on
ÿ appeal. Ten other plaintiffs got confidential settlements
ÿ of six and seven figures, lawyers say. The other cases
ÿ are pending.
ÿ Trained as a doctor, Dr. Peeno opted in the early 1980s
ÿ to stay at home with her children rather than start her
ÿ own medical practice, as her husband had. In early
ÿ 1987, she went to work part-time reviewing claims for
ÿ Humana as an independent contractor.
ÿ It didn't take long for her to grow disillusioned. Dr.
ÿ Peeno says she was shocked when her superiors told her
ÿ to maintain a 10% denial rate on claims she reviewed.
ÿ Humana says it has never ordered reviewers to deny a
ÿ certain percentage of claims.
ÿ In October 1987, she confronted a case that still haunts
ÿ her. She received a request to authorize coverage of a
ÿ heart transplant. Though she believed it to be medically
ÿ necessary, her supervisor and co-workers were worried
ÿ about the hundreds of thousands of dollars the procedure
ÿ would cost.
ÿ With that in mind, she called several colleagues to see if
ÿ there was any basis to deny the request. One of them
ÿ found a clause in the contract between the patient's
ÿ employer and Humana that specifically excluded heart
ÿ transplants. When Dr. Peeno called the heart surgeon and
ÿ told him she was denying coverage, he said, "You've just
ÿ issued a death sentence.' "
ÿ Humana's Mr. Noland says the patient's employer
ÿ "elected specifically to have a contract with Humana for
ÿ its employees that did not cover heart transplants. There
ÿ was no discretion to be exercised."
ÿ The patient was discharged from the hospital, never
ÿ received a transplant and died from heart failure 28
ÿ months later.
ÿ The fact that the decision boiled down to language in the
ÿ contract "allowed me to soothe my conscience" at the
ÿ time, Dr. Peeno says. But later, she was troubled by the
ÿ feeling that she had made a medical decision based on
ÿ economic imperatives instead of patient needs.
ÿ Leaving the Industry
ÿ Dr. Peeno quit after eight months and became medical
ÿ director of a nonprofit HMO and the hospital that was its
ÿ part-owner. In 1990, she left the industry for good.
ÿ "By that point I began to understand that this whole
ÿ phenomenon of managed care was evolving without a
ÿ real ethical critique," she says. "I decided to make it my
ÿ goal to learn more about managed care than the
ÿ managed-care industry knew about itself."
ÿ She spent the next two years studying health-care law,
ÿ philosophy and ethics at the University of Louisville and
ÿ Louisville Seminary. She began to speak to consumer
ÿ and physician groups about the ethics of managed care.
ÿ In 1993, she was asked to testify before a congressional
ÿ committee about ways HMOs avoid paying claims.
ÿ Then in 1995, an Oklahoma City lawyer named Jerry
ÿ Pignato called an attorney at the American Medical
ÿ Association looking for an expert witness who could
ÿ help him in a lawsuit he filed against an HMO for
ÿ repeatedly denying his client referral to a specialist.
ÿ Despite frigid relations between doctors and plaintiffs'
ÿ lawyers, the AMA attorney was glad to play matchmaker
ÿ and recommended Dr. Peeno. Mr. Pignato hired her and
ÿ won a six-figure settlement for his client, and Dr.
ÿ Peeno's career as an expert witness took off. Last year,
ÿ she says, she earned $19,000 as a witness and
ÿ consultant. She expects that to rise to about $30,000 this
ÿ year.
ÿ Dr. Peeno's repeated appearances have led defense
ÿ lawyers to mount attacks on her credibility. In a recent
ÿ case in state circuit court in Palm Beach County, Fla.,
ÿ Humana filed a motion to block her testimony, saying she
ÿ wasn't qualified as an expert in medical ethics. The
ÿ judge rejected the motion, in part, because the plaintiff's
ÿ lawyers produced an internal Humana e-mail message
ÿ that referred to Dr. Peeno as an "anti-managed care
ÿ ethicist."
ÿ In her deposition in that case, defense lawyers pursued a
ÿ highly personal line of questioning. "Have you been
ÿ accused in any current legal proceeding of needing to
ÿ curb your frivolous and uncontrolled spending habits?"
ÿ she was asked. "Do you see a therapist?"
ÿ Dr. Peeno says the questions referred to allegations her
ÿ husband made in June when their divorce proceedings
ÿ were acrimonious. They have since agreed on terms of
ÿ their divorce, and her husband has disavowed the
ÿ allegations in a new affidavit. "It's taken a while to get
ÿ used to it," she says, "but I'm resigned to living in a bell
ÿ jar and having my life dissected by lawyers." |
