DOCTORS SUE HMOS MEDICAL GROUP SAYS INSURERS CONSPIRE LIKE RACKETEERS FOR PROFITS.

Byline: Jason Takenouchi Staff Writer

The California Medical Association, representing 34,000 doctors, filed a federal lawsuit Thursday claiming that three of the state's largest managed-care companies are causing a massive medical crisis by putting profits ahead of patients' needs.

The landmark civil action in U.S. District Court in San Francisco charges that the companies - Blue Cross of California, PacifiCare Health Systems and Foundation Health Systems - are violating federal anti-racketeering laws and interfering with doctors' ability to treat their patients.

In its 40-page complaint, the CMA says the companies pay rates for services that do not cover doctors' costs, unjustly delay and deny payments for necessary treatments, and use their financial clout to impose unfair contract terms.

``We had to send a message, loud and clear, that doctors simply cannot take it anymore,'' CMA President Marie Kuffner said. ``The real problem is decisions that get made are not based on needs of patients. They're based on the bottom line.''

HMO industry officials denounced the doctors' position Thursday.

Linda Kalustian, a spokeswoman for HealthNet, a subsidiary of Woodland Hills-based Foundation Health Systems, said the lawsuit would drain money from an already-troubled health care system.

``The industry has been willing to sit down with the California Medical Association and talk about their concerns,'' she said. ``Let's sit in the conference room instead of the courtroom.''

The CMA suit claims that the companies' actions fall under anti-racketeering laws because they involve mail fraud, wire fraud and illegal interference with the patient-doctor relationship.

The association - which is seeking class-action status for the lawsuit - is asking the court to enjoin the companies from prohibiting the payment of reimbursement adequate to cover the costs of delivering the health care that doctors promise to patients and from engaging in what the CMA called ``fraudulent and extortionate policies and practices.'' The three for-profit companies insure about 9 million Californians, according to the association.

CMA officials said the lawsuit is a last resort after separate negotiations with elected officials, regulators and the companies failed. Archie Lamb, a Birmingham, Ala., attorney involved in recent suits against the tobacco industry, is leading the CMA's legal team.

The action is one of dozens of lawsuits across the nation that are attempting to use the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, to challenge health maintenance organizations. But industry analysts said it is the first such lawsuit initiated by a medical association.

``The attorneys (who) are driving this suit come directly from the tobacco industry class-action attempts,'' said Michael Chee, a spokesman for Woodland Hills-based Blue Cross, a subsidiary of Thousand Oaks-based WellPoint Health Networks Inc. ``They have one motive and one motive only, and that's to make money for themselves.''

The suit had little effect on the companies' stocks Thursday. PacifiCare Health Systems Inc. closed down 25 cents at $59.75, Foundation Health Systems closed down 12.5 cents at $11.88, and Wellpoint closed up 37.5 cents at $74.06.

But some patient care advocates applauded the CMA action.

Jamie Court, advocacy director for the Foundation for Taxpayer & Consumer Rights, said the move would add weight to the effort to reform the industry. Court's Santa Monica-based foundation has filed four suits against Kaiser and Aetna.

``We're glad doctors are joining us in this arena because it adds a lot of power to the claims we have made,'' Court said.

``Patients think their medical care providers are there to help them, but these corporations have put policies in place that preclude physicians from doing their jobs,'' Court said. ``The HMOs are acting unfairly and in some cases illegally.''

Brian Johnston, chairman of the board of trustees of the Los Angeles County Medical Association, said a recent emergency room case underscored problems with the HMO system.

He said that case involved a young woman with severe stomach problems who had waited a year for an ultrasound, a routine diagnostic procedure, because of long delays in insurance company authorization. When Johnston performed the ultrasound, he said he discovered gallstones that had incapacitated the woman for days.

``This woman needed treatment. She needed surgery,'' Johnston said. ``She did not need authorization.''

Chee, the Blue Cross spokesman, said such problems are rare. ``They're very small, very limited, and they do not represent the majority of patients in the health care system.''

If doctors extracted larger reimbursements from insurance companies, it would push up patients' premiums and add to the number of uninsured in the state, he said.

``Our net profit from premiums (is) . . . only 3 or 4 cents on the dollar. The dollars are all part of the same financial system. If you put pressure on one area, that bubble has got to expand somewhere else.''

CMA officials counter that the industry is diverting money to stockholders, executive bonuses and unnecessary layers of management that should go to patient care.

``They're ripping the system off,'' Johnston said.

Court, the consumer advocate, said market forces are only part of the story.

``The free market does not say that you can violate medical ethics and medical practice protocols that are protected under state law,'' he said. ``The free market doesn't mean you can ignore customary responsibilities under an insurance contract to provide medically necessary care.''

He continued: ``This industry is going to face its day in court. Whether it wins or not is a whole other issue.''

Staff Writer Chris Sieroty contributed to this story.