DOCTORS MAY PROCEED WITH RICO CLASS ACTION AGAINST HMOs.

Some 700,000 doctors who have filed a class action against managed care companies may proceed with their claims under the Racketeer Influenced and Corrupt Organizations Act, U.S. District Judge Federico Moreno of Miami ruled Dec. 8. RICO allows plaintiffs to recover triple damages.

The ruling in In re: Managed Care Litigation (MDL 1334, 00-1334-MD-Moreno) is the latest of a string keeping alive a class action by doctors and medical associations charging major health maintenance organizations with engaging in a pattern of failing to pay claims in full and on time, as required by contract and various statutes.

An earlier ruling by Judge Moreno, granting class action status in the first place, is still under appeal before the Eleventh U.S. Circuit Court of Appeals.

Two defendants, Aetna and Cigna, already settled. Remaining defendants include UnitedHealthcare and UnitedHealth Group; Health Net; WellPoint Health Networks; Prudential; PacifiCare Health Systems; Humana and Humana Health Plan; Coventry Health Care; and Anthem.

In his latest ruling, Judge Moreno said the plaintiffs had met the requirement he imposed that they show the existence of an "enterprise" of individual defendants - which he termed a "Managed Care Enterprise," or MCE - associated in fact in order to carry out a pattern of racketeering activity.

"Every individual entity plays a role in the enterprise equation: each Defendant and their subsidiaries throughout the country; other health insurance companies not expressly named; third party entities that develop claims processing or components; third party entities which promulgate patient care guidelines; third party entities that Defendants hire to review and wrongfully deny claims; trade associations; and a health industry database, MedUnite," Moreno wrote.

"Plaintiffs paint a further picture of the enterprise's operation and control by alleging that Defendants played a part in directing the affairs of the enterprise by developing guidelines and standards to use as criteria to deny claims; by hiring others to developing automated systems for manipulating claims, by creating MedUnite as a common entry point for physician data, and by approving on a CEO by CEO basis the joint actions of the Coalition for Quality Healthcare," he wrote.

"These allegations, if established, would show that the MCE furnishes a vehicle for the commission of continuing predicate crimes with the Defendants squarely in the driver's seat."

Although allegations of "withholding or delaying payment under a contract, even for extortionate purposes, do not constitute criminal mail or wire fraud," Moreno wrote, "contractual settings can provide the context for RICO mail fraud claims if there is a pattern of misrepresentation amounting to both a scheme to defraud and racketeering activity."

Moreno rejected the HMOs' argument that the RICO claims are barred by the McCarran-Ferguson Act, which reserves regulation of the business of insurance to the states.

"The contracts of insurance were between Defendants and the insureds, not between Defendants and the individual providers," he said. "Accordingly, the Court finds that the relationship between insurers and providers falls outside the 'business of insurance' and thus the Act does not pose a preemption issue."

Nor are the claims by providers participating in the health care plans preempted by the Employee Retirement Income Security Act, he said, because these plaintiffs are not participants or beneficiaries of plans covered by ERISA.

At the same time, however, he said providers receiving assignment of benefits from plan participants have derivative standing to sue under ERISA - so they have to exhaust the administrative remedies set forth in that law. He dismissed their RICO claims with leave to file them again.

Moreno also ruled several state medical associations listed as plaintiffs had standing to sue.

In the earlier settlements, both Cigna and Aetna agreed to change their business practices.

The Cigna settlement calls for the doctors to receive at least $70 million, with another $15 million going to a health care foundation and up to $55 million in attorney fees. The estimated cost of changing business practices is $400 million.

The Aetna settlement calls for the plaintiffs to receive $100 million, plus $20 million for the health care foundation and $50 million in attorney fees. Aetna estimated the cost of changing its business practices at $300 million, for a total of $470 million.

Plaintiffs' lawyers include Archie Lamb of Birmingham, AL; Kozyak Tropin & Throckmorton of Miami; and Milberg Weiss Bershad Hynes & Lerach of New York.