Jury holds HMO liable for refusing coverage.

The family of a California woman who died last year from breast cancer has won substantial damages against the health maintenance organization (HMO) that refused to pay for a bone marrow transplant to treat her disease. The verdict is believed to be the first ever in a dispute over medical coverage by an HMO.

The jury awarded compensatory and punitive damages to the husband and three young daughters of Nelene Fox in their lawsuit against Health Net, California's second largest HMO. The jury found that Health Net, based in Woodland Hills, had breached its contract with Fox, acted in bad faith, and recklessly inflicted emotional distress. (Fox v. Health Net, No. 219692 (Cal., Riverside County Super. Ct. Dec. 28, 1993).)

Don Prial, a spokesman for Health Net, said the company had asked for a new trial and would appeal if necessary. He said the verdict "was clearly contrary to the evidence presented at trial and just as clearly was rendered on an emotional basis, not an intellectual basis."

Mark Hiepler of Oxnard, California, the family's attorney and Nelene Fox's brother, said the verdict sends a message to insurers: "What you market to someone when they're well you'd better be prepared to deliver when they're ill." He said Health Net's policy stated that it covered bone marrow transplants.

But Prial said the policy clearly excluded experimental treatments. Health Net argued at trial that bone marrow transplants for advanced breast cancer, as in Fox's case, have not been proven safe and effective. Hiepler responded that hospitals around the country have used the treatment Fox sought. "This is not something limited to laboratory animals," he said.

The family also argued that Health Net executives had financial incentives to deny coverage for expensive procedures. Hiepler said the company awarded bonuses based on its overall financial performance. Another bonus program rewarded executives who limited the amount of time patients spent in hospitals. "It puts [the executive] in a terrible conflict of interest," Hiepler said.

He acknowledged that forcing insurers to pay for costly treatments runs counter to efforts to control skyrocketing health care costs. But he added that insurers are free to exclude these procedures - as long as they do so before consumers sign up for coverage. He said insurers must make it clear to consumers what they cover and don't cover, then stick to their word when patients file claims.

Fox eventually received the transplant, paid for with money collected through community fund-raisers. She died eight months later in April 1993.

A hearing on Health Net's motion for a new trial of the case was scheduled for February.