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HMOs on trial: a Texas lawyer seeks HMO accountability and equilibrium. (Managed Care on Trial).

Q: What is your background as a lawyer, and how did you become interested in litigating against HMOs?

Young: I am a Partner at Friedman, Young, Suder & Cooke in Fort Worth, Texas. I have been practicing law for almost 17 years. I was a business litigator for the first ten or 12 years. Then I was asked to be co-counsel on a case against an HMO. I worked on the business corporate parts of the issue: bonuses and incentives and that sort of thing. I decided HMO litigation was a niche I wanted to work on more, to learn more about, and to become more active in.

Q: What sort of work do you do in the HMO litigation field?

Young: I devote 90 to 95 percent of my practice to litigate against HMOs. I break this litigation down into four areas.

1. I have represented physicians against HMOs, primarily involving either payment issues or improper incentives to physicians to deny care.

2. I have litigated individual quality of care cases for patients against HMOs.

3. I have been special co-counsel to the State of Texas in the declaratory judgment action that Aetna brought in an attempt to declare that our '97 HMO liability statute was preempted by ERISA and HCFA.

4. I have represented parties, both doctors and patients, in various class actions.

My firm also cooperates with the regulators, regulatory enforcement, and has litigated in Courts of Appeal.

Q: Texas has been a hotbed for HMO litigation. Wasn't Texas the first state in '97 to allow patients to sue HMOs?

Young: Yes. An opinion came down a little over a year ago out of the Fifth Circuit called Giles. I was the lead appellate lawyer. It was the first time this decade that the Fifth Circuit has allowed a claim against an HMO to go forward in the state courts. That was the first in what we think will be a series of cases in which the courts continue to soften their position on preemption and allow these cases to go forward. I testified in favor of the '97 statute and before Senator Sibley's senate committee when they were deciding whether to pass that statute and what it should say. I worked with the Texas Medical Association and each legislative session on these issues.

Q: Were you involved in the action against Aetna brought on by the Texas attorney general?

Young: There were a series of enforcement actions filed by the predecessor attorney general, General Morales, that General Cornyn has since taken over. I was only peripherally involved in some consulting to the attorney general's office.

Q: The enforcement actions against Aetna were:

* No fine, penalty, admission of guilt, or finding of fault against Aetna.

* Establishment of an Office of Ombudsman to act as an advocate for Aetna members and to assist in appeals.

* Expanded external appeals for consumers who are denied coverage for certain services.

* Enhanced disclosure of how doctors are paid and how medical necessity is established.

* Ability of doctors to choose whether to participate in all types of Aetna health plans.

How significant is this agreement?

Young: There are solid provisions in this agreement. In any settlement agreement you never get everything you want, and a lot will depend on how strongly it is enforced. The preliminary indications are that General Cornyn intends to enforce it. There are three main provisions that are far-reaching:

1. The waiver of ERISA by Aetna to any action brought forward in Texas.

2. The provision that Aetna agrees to abide by all laws of the state of Texas. (You couple those, and you basically have Aetna giving up its ERISA preemption defenses.)

3. Aetna agreeing that the HMO is responsible for the downstream incentives paid by these big doctor groups to the individual physician. They have to monitor those and report on them. A lot of HMOs will say they pay straight global capitation to downstream IPAs and we are not responsible for how they cut up the money with individual doctors. The Department of Insurance took a position identical to the attorney general's in its enforcement action against Harris HMO two years ago. We worked with them on that enforcement action.

Q: Tell us more about the case brought against an HMO medical director making him or her liable for practicing medicine.

Young: The State Board of Insurance has gone after a medical director for United Healthcare. That case is pending in Dallas. The attorney general is handling it. Given Judge Higgenbothen's decision in the Aetna opinion in June, the state should win that case. He wrote that the state has the right to enforce, monitor, and discipline doctors acting as medical directors. I would expect the District Court to follow Judge Higgenbothen's opinion, and there will be an appeal and we will see what the Fifth Circuit does.

Q: Does this make medical directors vulnerable in that it opens them to malpractice suits?

Young: It makes them accountable for their decisions.

Q: How important for the rest of the country are these actions in Texas allowing patients to sue HMOs, disciplining the medical director, and wrestling Aetna to the ground on its contractual relationships with physicians? Do these actions establish momentum among lawyers who litigate against HMOs?

Young: These precedents get the legal ball rolling. I have visited with legislative boards, the media, and public interest groups who have been working to get similar statutes passed across the country. The Texas statute has been used as a model, although it has not been copied identically in the seven or eight states that have passed similar bills. I worked with folks in California when they were figuring out their approach and people in New York and Washington State. Everyone is watching what Texas does. That is why the Fifth Circuit's Aetna decision on the independent review process was so disappointing. I don't think we are through with it. This is probably going to the Supreme Court.

Q: How important was the U.S. Supreme Court decision on June 12, Pegram v. Hedrich? The court ruled unanimously that patients couldn't use the 1974 ERISA law to sue HMOs for giving bonuses to doctors who skip diagnostic tests or use other tactics to cut treatment costs. The New York Times said the court spared managed care from a "potentially fatal legal attack."

Young: The Pegram v. Hedrich decision was important. It was a limited decision that you can't sue under ERISA for breach of fiduciary duty for merely paying these incentives. There is some interesting language and reasoning in the opinion indicating that federal preemption of these quality of care cases has weakened, including medical necessity decision-making. There is not much left in terms of good federal preemption arguments.

The Supreme Court has said that those types of lawsuits should go forward in state court. That was a big reason Justice Souter gave for not finding that claim to be valid. He didn't want to do anything that created preemption of what he viewed as valid state court claims against HMOs.

We filed a case (Ehlmann) as a class action against five large HMOs in Texas where all we asked is that they would disclose to their members that they pay incentives to physicians to deny care. The Fifth Circuit disagreed with our position. In Ehimann we were very clear that it is the non-disclosure that breaches the fiduciary duty. The Supreme Court in Hedrich indicated that this would be a good claim.

Q: In his statement supporting the decision, Chief Justice Souter said, "No HMO organization could survive without some incentive connecting physicians' rewards with treatment rationing." Was it important that he put the "R" word, "Rationing." on the table?

Young: That was an interesting statement, but Justice Souter was wrong. It shows that he bought the insurance industry's amicus briefs without understanding how HMOs pay. There are HMOs that don't give incentives. The trend in the industry is away from paying these incentives. Many have decided they are not worth it.

We have done our part to make sure HMOs feel it is not worth it. A lot of HMOs simply pay straight capitation to their primary care doctors without these onerous incentives. Capitation does not lead to rationing or shouldn't if the cap rate is fair and if it is negotiated at arm's length with both sides having equal market power.

Q: What effect would stripping this ERISA shield have on HMOs and corporations themselves?

Young: It won't have any effect on employers. HMOs like to scare the Chambers of Commerce with that threat, but I am not seeing it. I have been doing this for over six years and have yet to even think about suing an employer--except under ERISA--which sometimes requires joining the employer as plan sponsor. Until we strip away the ERISA shield that HMOs hide behind, we won't see good quality care out there.

The whole premise of tort reform is accountability. Until you have corporate accountability, you are not going to have quality. It is easier to cut corners and deny care in the name of budgets and making a profit, unless there is some ultimate accountability. Accountability of HMOs for care is the name of the game.

Q: One of the major campaign issues this fall is patients' rights legislation. The Republicans are against it. Is that smart?

Young: No, it will cost the Republicans the House.

Q: What happens if the Democrats win the House?

Young: You'll have some horse races in the Senate, but Republicans will still control it. But there won't be as many of them because of the patients' rights issue. You will probably have a Republican president. Bush allowed the Patients' Bill of Rights to become law in Texas and has been a strong supporter of it. His administration has also supported it. General Cornyn has fought hard to keep it. So, you will have a Republican in favor of it in the White House, a Democratic Congress that supports a good Patients' Bill of Rights legislation, and a marginally Republican Senate that has had the hell scared out of it on this issue. The Senate will realize that their Patients' Rights opposition has cost them one or two Republican colleagues.

Q: Will HMOs have to change their stripes and modify their behavior? Will they simply become one of many health care plan choices? There are 160 million Americans in HMOs. The average premium is about $3,500 per year, which amounts to a $560 billion target for HMO lawyers. The tobacco industry is only $50 billion. That would seem to make HMOs an irresistible deep pocket for lawyers. Suppose these class action suits by the syndicate of seasoned plaintiffs' lawyers, led by Richard Scruggs, are successful. Should litigation lawyers be setting national policy on guns, tobacco, and now HMOs?

Young: I don't want to comment on the motivations of these lawyers or the chances of those huge class actions. I have had mixed success against HMOs. I have been successful in three cases of modest scale against HMOs, and I lost in the Fifth Circuit on Ehlmann in another class action. HMO lawyers are tough, and the courts don't really like class actions. I am not saying court decisions have irreparably injured those class actions or made them not viable, but lawyers pursuing a class action status against HMOs have a little tougher road ahead, although some things in Hedrich actually help their cause.

Still, I learned a long time ago not to underestimate those tobacco lawyers. They are committed and have the resources to back it up. They have the benefit of being right about HMOs. Their premise is these HMOs are nothing but machines of denial of care. The recent dramatic shifts toward Point-of-Service plans and PPOs tell us everything we need to know about the future of limited choice and limited access models. These restrictive plans, which we think of as HMOs in the classical sense, will probably not survive ten more years.

Add to that the movement to defined benefit or contribution plans, where the employer sets aside an amount of money and the employee uses it to shop for their health plan. It gets the employer out of the business of deciding or controlling or favoring one HMO or insurance arrangement over another. You will see a revolution in ten years. HMOs will be dinosaurs in 15 years. By 2015, we won't be talking about them as a real player in the health care system anymore.

Q: Are you predicting this consumer-driven movement will gain steam and momentum and HMOs will be relegated as one of many health plan choices?

Young: Couple the use of Internet with the ability to shop around and obtain detailed information about your choices, with employers saying they will give each employee $400 per month to apply toward health care, and you have the ingredients of explosive change with the downsizing and fading of HMOs. Employees will use the Internet to pick and choose between the plans, hospitals, and clinics. The idea that the employer and HMO could come together to control health care will be regarded as a quaint historical relic.

Q: Employees and consumers are smart enough to sort all this out?

Young: They are as smart as the employers. They can do at least as good a job as the employers have been doing.

Q: Will the lawyers and class action suits be what brings HMOs down?

Young: HMOs will not become obsolete because of the class action lawsuits. These suits are on an independent track. Other things are going on in the economy that will make HMOs dinosaurs.

Q: Leonard Schaeffer, CEO and President of WellPoint, spoke at a recent Wall Street Journal summit conference. He said his company's strategy is to shift employees into Point-of-Service plans and PPOs and away from restrictive HMOs. His company is thriving, partly because of the emphasis on choice, partly because of his ruthless squeezing of money out of hospitals and doctors. Because of Schaeffer's and other HMOs' tightfisted bottom line policies against physicians, on May 26, the California Medical Association, under the Racketeer Influenced and Corrupt Organization Act, filed suit against WellPoint Health Networks, Foundation Health Systems, and Pacificare Health Systems. Is this thrust by HMOs to squeeze doctors dry, and the counterattack by doctors to sue HMOs for low or late payments a sign of the times?

Young: That will be the trend in the next five or six years.

Q: HMO litigation must be challenging for you as a lawyer. There is plenty of action out there.

Young: It is fun to be challenged after practicing law for 17 years. Litigating against HMOs has been an uphill battle. I knew the cards were heavily stacked in favor of the HMOs six years ago. But it is rewarding to represent doctors who really want to take care of their patients or families that have been the victims of a terrible system.

Q: There is another movement under way, collective bargaining for independent self-employed physicians, as evidenced by the recent passage of the Campbell Bill in the House, which allows independent doctors to collectively negotiate with HMOs.

Young: It's only fair. HMOs control so much market share and so many patient lives--to think that these cap rates are arm's length negotiations when they are laid on the individual doctor is just goofy.

Q: In California, five HMOs control 90 percent of the market and are pitted against 300 physician groups.

Young: And the five HMOs' cap rates are probably within 10 percent of each other. Yet the HMOs will claim there is no collusion. We need to balance the playing field between HMOs, patients, and physicians. I wish there was a better way to do it than legal actions. Until we find some equilibrium, doctors will be negotiating more on the collateral terms to get rid of these goofy withholds, incentives, and budgets that limit treatment. My sense is that physicians would like to get rid of negotiations and get a fair cap rate so they can pay their staff, keep the doors open, pay off their educational loans, and take care of their families.

Q: Is the equilibrium developing between HMOs, patients, and physicians a good thing?

Young: It will be if we can get there. We are still several years away. The key battle is still medical necessity. Who should decide that issue?

Q: The doctor at the examining table or the HMO executive in a remote office suite?

Young: That is the paradigm. I don't have any problem with an employer and an insurance company writing a contract that says we will limit hospital days to 100 days a year. They have made a contract and it is spelled Out in the policy. That is economic, and this is still America. You have freedom of contract. But to lead employees to believe they have unlimited hospital days and then turn around and have a budget that says you have to have an average five-day length of stay. And all hell breaks loose if anybody goes over that--bells and whistles go off, there are staff meetings, medical directors start getting hammered on, and ER nurses are called into their supervisor's office--that is just wrong. Until we have a way to litigate that when it goes wrong, you don't have equilibrium.

Q: To sum up, equilibrium of power between HMOs, patients, and physicians and accountability of HMOs for medical necessity issues are the goals you hope to achieve through litigation?

Young: Yes, that is my goal.

RELATED ARTICLE: About George P. Young, JD..

George P. Young, JD, is a Partner at the law firm of Friedman, Young, Suder & Cooke in Fort Worth, Texas. He is considered by many to be the best-known HMO lawyer in Texas. He has been practicing law for almost 17 years, and was a business litigator for the first ten or 12 years. Then he was asked to be co-counsel on a case against an HMO and decided HMO litigation was his true calling. He now devotes 90 to 95 percent of his practice litigating against HMOs. He can be reached by calling 817/334-0443 or via email at

HMOs on Trial: The HMO Fault Line in Connecticut

Connecticut, a small state of 5,000 square miles with 3.3 million people, lies directly on the managed care fault line. Geologists who study plate tectonics say a fault line straddles forces just beneath the earth that cause recurrent or severe earthquakes with aftershocks. Managed care backlash forces include: the Patients' Bill of Rights, suing of HMOs by patients in various states, unionizing efforts by the American Medical Association, passing of the Campbell Bill in the House, physicians pulling out of HMOs in droves, HMOs abandoning Medicare patients, and physicians confronting Aetna and other HMOs for onerous contracts and for late payments. Because Connecticut is considered the Insurance Capital of the World, and because it is Aetna's home, Connecticut has a fault line all its own.

Perhaps the earthquakes are more severe in Connecticut. After all, Connecticut has Aetna, the largest managed care organization in the United States with $26 billion in revenues, three major HMOs--CIGNA, out of Philadelphia, Foundation Health Systems out of California, and Anthem Blue Cross, out of Indiana--and a homegrown HMO, Connecticare, among others, operating in the state.

Or maybe the aftershocks just seem more intense. Because of its small geographic size (it is the third smallest state), physicians belonging to the Connecticut State Medical Society can easily travel in one to two hours to the Society's New Haven headquarters or to the capital in Hartford for frequent cheek-to-jowl discussions, debates, and clashes over controversial HMO issues.

Straddling the fault line

Sitting astride the fault line has been Tim Norbeck, Executive Director of the Connecticut State Medical Society (CSMS) for 22 years and an activist in medical politics for 34 years. Norbeck knows a thing or two about HMOs. The Connecticut State Medical Society was the first in the nation to organize, finance, and run a successful provider-owned HMO, MD Healthplan, in 1985. MD Healthplan rose to become the largest HMO in the state, and was sold to a for-profit California HMO, Health Systems International, in 1995--something that still rankles him.

CSMS has been a leader in standing up to the "dark side of managed care" and challenging Aetna about its restrictive micromanagement and its heavy-handed all-products contracts.

* With help from the AMA, CSMS launched a major newspaper advertising campaign: "Aetna is playing doctor with our patients." The campaign drew national attention.

* He was instrumental in inviting Big Tobacco lawyer Richard Scruggs "to keep the heat on" and address the CSMS. The July 17 issue of Time magazine leads off its cover story with this line: "Mississippi trial lawyer Dickie Scruggs walked into the Connecticut State Medical Society with the smile and swagger of a man who knows he's the main attraction."

* He helped persuade William Donaldson, the CEO of Aetna, to walk into the lion's den, the GSMS House of Delegates' meeting, to address an audience of hostile Connecticut physicians. Physicians were lined up 25 deep behind microphones in two aisles to grill Donaldson.

Says Norbeck, "Certainly we've had our share of earthquakes in Connecticut. No doubt there will be more. This has been a war zone. We've seen a number of suits and complaints against HMOs. But the suits have made HMOs more amenable to a strong independent appeals process. That is positive. And the publicity and heat we've generated has also been helpful in bringing HMOs to the table."

"Other positive things have also been happening. Recently an Appeals Court upheld the Texas law allowing states to sue HMOs for malpractice. By the way, since that law took effect in October 1997, there have only been five cases brought against HMOs in Texas--hardly the plethora of suits HMOs feared. Georgia, California, Oklahoma, Maine, and Arizona have enacted similar laws. In Connecticut, we don't have a specific law, but because of a ruling on an HMO case in which a young HMO mental patient tragically committed suicide, we can, in effect, sue HMOs."

Adds Norbeck, "What gives the backlash power is that physicians and patients are now on the same side of the issue on patients' rights, including the right to sue HMOs."

Aetna is playing doctor with our patients

Of the various initiatives of the Connecticut State Medical Society, Norbeck comments, "We ran the 'Aetna is playing doctor with our patients' ads on September 29, 1999, after a series of complaints from our members about how Aetna was coercing physicians to sign onerous contracts, which included "all products" clauses.

All-products clauses forced doctors to join all Aetna health plans--even those not developed yet. The ads resonated with patients and physicians, and made waves throughout the insurance industry, particularly in Connecticut, the Insurance Capital of the World. Because of our being the cradle of the industry, our ad became a national story. The response obviously surprised and pleased us."

"That advertising campaign, Richard Scruggs' visit, Aetna stockholders' revolt, Aetna's stock plunge, and the resignation of Aetna's CEO Richard Huber under fire, all led to the new Aetna CEO, William Donaldson, speaking before the CSMS' House of Delegates. That was his first appearance before a group physicians."

The pendulum has swung too far

"Donaldson said the 'pendulum has swung too far' and that he would hold himself accountable for repairing the strained relationships with physicians. We take his word for that, and we intend to hold him to it. He went on to say, 'I promise a sea change in our corporate attitude toward working with your profession. We have listened to what you have been telling us. Forging lasting partnerships with you is extremely important to me. It is one of the main initial goals I set for the company and for myself when I became CEO of Aetna When I see a physician or members of my own family who deal with physicians, I want to hear 'Aetna has changed for the better.'"

"He said that CSMS could appoint a member to be on their quality advisory committee and that nothing would be off the table in those discussions." Norbeck believes "Aetna now recognizes they must reach out to the physician community--that it is truly in their best interests, not just that of patients and physicians, to do so. We remain cautiously optimistic."

"As far as Scruggs goes, we met with him in December of 1999, invited him to come, and he spoke in February. Scruggs has been demonized by Big Tobacco and Big HMOs as an ambulance chaser. But, according to Scruggs, this isn't about money. It isn't about ambulance chasing. It's about public policy, behavior, and accountability. He says that his purpose is not to destroy HMOs or to put them out of business, but to change their behavior and accountability. I believe Scruggs is sincere in that desire and I know that he is effective, although the HMOs would certainly disagree. Archie Lamb, an Alabama attorney, is pursuing class action suits against HMOs on the part of physicians, while Scruggs is doing it on the part of patients. In our state, Richard Blumenthal, the Connecticut Attorney General, has been very helpful to us and patients in our battle to make HMOs accountable."

"What happens in Connecticut is significant because of our status as a bellwether state and home of the insurance industry. If something positive happens here, it will be easier for other states to enact or initiate similar actions."

Are HMO medical directors vulnerable?

An article in the July/August 2000 issue of The Physician Executive by Howard Kirz, MD, MBA, "Congratulations, You're Fired!" indicated that the risk of being fired is 20 to 40 times higher for physician executives than for clinicians. (1) The survey of 620 physician executives indicated that 290, or 47 percent, had been personally fired. In a related two-part article in the New England Journal of Medicine, "Executives with White Coats--The Work and World View of Managed Care Medical Directors," the authors concluded:

"There is as yet no consensus on the part of the medical community or the general public about how to balance the interests of individual patients with the need for cost containment. Until such a consensus is reached, medical directors, who are charged with the politically taboo task of rationing care, may continue to be unpopular with many patients and physicians. " (2)

I asked Norbeck about the vulnerability of HMO medical directors. He replied, "Last year we started having monthly meetings with HMO medical directors in Connecticut. So far attendance has been spotty, and we have met three or four times. We have talked about physicians' anger and frustration, micromanagement and denial of care, outliers, the growing interest on the part of some in a single payer system, the myriad problems in managed care, and possibly collaborating on guidelines.

We have had candid, respectful discussions, and for the most part, we have agreed to disagree. I understand medical directors are in a tough position and, in some cases, they are vulnerable. But that is more a problem of the corporate world of HMOs than anything else. We hope HMOs and their medical directors can work with the physician community, but we live in different worlds, we have arguably different constituencies (ours do not include shareholders), and there are no easy solutions. It behooves HMOs to listen more to their medical directors and to genuinely reach out to the physician community. Failure to do so will only add to their already considerable public relations woes. CSMS and other physician organizations are not going to go away."

Tim Norbeck, Executive Director of the Connecticut State Medical Society, can be reached by calling 203/865-0587 or via email at


(1.) Kirz, H. Congratulations...You're Fired! The Physician Executive. 2000: 26(4):19-25.

(2.) Bodenheimer, T., and Casalino, L. Executives with White Coats--The Work and World View of Managed Care Medical Directors (First and Second Parts). New England Journal of Medicine. 1999; 341:1945-1948. 2029-2031.

Richard L. Reece, MD, is a health care writer, Editor-in-Chief of Physician Practice Options, health care futurist, and Internet entrepreneur. He is on the board of an Internet start-up company that provides independent physicians with business support services, and he is President of Focus Consulting, Inc. which determines what Internet applications physicians need, want, and will embrace. He can be reached by calling 888/457-8800 or via email at
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Author:Reece, Richard L.
Publication:Physician Executive
Article Type:Interview
Geographic Code:1U1CT
Date:Sep 1, 2000
Previous Article:Liability of medical directors: a growing concern. (Managed Care on Trial).
Next Article:The death of managed care? (A Member Responds).

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