Physician suits against HMOs target unfair business practices.

Across the country, physicians are suing major managed-health-care companies to force compliance with their contracts and improve business practices in the health care industry.

The suits are noteworthy because the doctors have legal claims that will survive in the courts over the long term, said Archie Lamb of Birmingham, Alabama, lead counsel in a federal class action against several of the nation's largest HMOs. "Patients don't really have leverage to challenge the inequities in the healthcare delivery system alone," he said.

The doctors' suits are a great concern to the insurance companies and their investors because of the large amount of damages claimed and the threat to the companies' relationships with the physicians.

The Louisiana State Medical Society (LSMS) has joined Lamb's suit, which was originally filed in federal court in Alabama and California in early 2000 and is now part of federal multidistrict litigation. Other plaintiffs include medical societies in California, Florida, Georgia, and Texas, as well as 19 individual physicians.

The LSMS is also a plaintiff in state suits filed in New Orleans district court in February 2000 against Aetna U.S. Healthcare, Inc.; Blue Cross Blue Shield of Louisiana; CIGNA Healthcare of Louisiana, Inc.; and United Healthcare of Louisiana, Inc.

The breach-of-contract suits allege that insurers disregard "medical necessity" criteria and rely instead on cost considerations when making coverage and treatment decisions; refuse to provide complete or up-to-date fee schedules and adequate information on reimbursement calculations; use computer software to manipulate physicians' procedure codes to reduce payments; and deliberately delay payments in order to earn interest on that money during the "float" period.

Lamb's federal class action, several state class action suits, and almost 50 other individual cases from across the country have been consolidated into federal multidistrict litigation in Miami. (In re Managed Care Litig., No. 00-1334-MD-MORENO (S.D. Fla. consolidated Oct. 23, 2000).)

However, the Louisiana cases are staying in state court. "The insurance industry tried to remove the Louisiana cases to federal court and failed," said Andrew Lemmon of New Orleans, co-lead counsel in the suits.

Many of the claims in the cases are similar, said Amy Phillips, LSMS general counsel. "Timely payment is one of the major issues. Some of the others include problems obtaining current and accurate fee schedules, bundling, down-coding, and using nonphysicians and cost-based criteria" to decide whether the patient should have a treatment or surgery. The differences, she said, depend on the individual state laws under which the claims are brought.

"The major problem is enforcement" of the doctors' contracts under state laws, Phillips said. Efforts to resolve the conflicts and enforce contract provisions through negotiation and legislation have been unsuccessful.

"Filing suit was our only other option," she said. "The LSMS is requesting injunctive relief on behalf of its members that will force the plans to follow the law and fulfill the promises they have made to patients and their physicians."

Overall, the goal of both the state and the federal litigation is to force insurers to adopt policies of "honesty in their business practice," said Lamb. Doctors want an efficient appeals process for their complaints and an enforcement mechanism when the companies don't comply with the law.

In a similar suit, six pediatricians in Kansas City, Missouri, sued Blue Cross & Blue Shield of Kansas City for breach of fiduciary duty, claiming that the company underpaid them and, in doing so, misappropriated Medicaid funds. (Vaughters v. Blue Cross & Blue Shield of Kansas City, No. 00-CV-227323 (Mo., Jackson County Cir. Ct. June 4, 2002).)

The doctors were participating in a pilot program, PreventionPlus, to provide preventive care to indigent children. They were to be paid on a per-patient, instead of a per-service, basis. Their contract provided that Blue Cross would review the fees annually and create a contingency reserve fund. The doctors allege that the HMO breached its fiduciary duty by mismanaging finances.

Plaintiff attorney Kirk May of Kansas City said that under the Medicaid-funded program, Blue Cross held money intended to be paid to the physicians. The company "managed and accounted for that money," but when it failed to do so in accordance with the contract, Blue Cross breached its fiduciary duty.

A jury agreed with the doctors, awarding them compensatory damages on the breach-of-contract claim and punitive damages on the breach-of-fiduciary-duty claim.