Legal News
Suit Charges Health Plans Violate Racketeering Laws
Psychiatric News
Volume 37 Number 9 page 6-45

Physicians can proceed to the next stage of a lawsuit that accuses major health plans of violating federal racketeering laws, according to a ruling in March by a panel of the 11th Circuit U.S. Court of Appeals in Atlanta.

The case, In re: Humana Inc. Managed Care Litigation, which dates back to a lawsuit filed by an Alabama physician in January 2000, charges health plans with violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act (Psychiatric News, October 19, 2001).

Specific allegations are that companies "covertly manipulate, maneuver, and exploit longstanding accepted industry-wide practices for financial gain, . . . capitation payment schedules are founded on actuarially unsound principles and are manipulated by defendants to increase their profits at the expense of the physicians who provide medical services, . . .[companies] systematically deny and delay payments due physicians and profit from the moneys wrongfully retained."

Lawrence Lurie, M.D., chair of APA’s Managed Care Committee and a California psychiatrist, said, "Certainly the case addresses real problems that psychiatrists face everyday."

He noted that although California had passed a "prompt payment" law, up to 20 percent of the "clean claims" he submits initially are denied by insurance companies. (A clean claim meets the requirements outlined by the insurance company.)

"We submit them again for billing," he said, "and I eventually get paid, but the hassle is frustrating and translates into lost income."

Among the defendants are Humana, Aetna, Cigna, Coventry Health Care, PacifiCare Health Systems, and United Health Group. Plaintiffs include medical associations in California, Florida, Georgia, and Texas.


The most recent ruling was in response to the argument by the managed care companies that the proposed class-action case filed on behalf of physicians throughout the country should go to arbitration before proceeding in court.

The three-member panel upheld an earlier ruling by U.S. District Judge Federico Moreno of the Southern District of Florida that in the four cases requiring a ruling, the "alleged fraudulent scheme does not differentiate between doctors with contracts and those without, and the RICO claims are unrelated to any of the contractual relationships that exist between the doctors and the HMOs."

The panel also noted that success in a RICO suit permits recovery of treble damages, so arbitration clauses that do not permit punitive damages would not be binding when RICO charges are applicable.

"We are encouraged by this ruling," said Archie Lamb, lead attorney for the physicians, in a press release from the California Medical Association (CMA). "[It] puts us a step closer to being able to access the defendants’ internal documents and obtain testimony of important officers and employees."

The health plans, however, have also claimed a limited victory, according to an article in the April 8 American Medical News.

Moreno eventually must rule on whether the lawsuits can be certified as class-action suits. The most recent ruling noted the "wide array of different relationships among the various parties in the action" in terms of the different kinds of arbitration clauses in the contracts.

Susan Pisano, spokesperson for the American Association of Health Plans, said the complexity of the relationships "undermines the idea that there is a commonality for [class-action] certification."


The case received a media boost from an unexpected source when release of the movie "John Q" on February 15 offered a dramatic depiction of a man who barricaded himself in a hospital emergency department to force the staff to provide lifesaving care for his son.

Although the film addresses the issue of the access of the underinsured or uninsured to adequate health care, its popularity earned Lamb and others an invitation to "CNN Sunday Night" on March 3 to discuss the RICO suit.

Marie Kuffner, M.D., representing the CMA, said, "We tried everything. We tried talking with the for-profit HMOs. . . . We tried legislation. . . . We filed the lawsuit as a last-ditch effort to finally get some resolution to a very serious problem."

Lamb concurred and called the civil justice system the "last recourse in efforts to level the playing field against the insurance industry."

Representatives from the insurance industry declined to participate in the interview.


The RICO charges against health care companies are proceeding in two tracks: physician and consumer. The consumer lawsuit first began in late 1999, when Mississippi lawyer Richard Scruggs, famed for his 1998 billion-dollar win against tobacco companies, filed class-action suits in Hattiesburg, Miss.

That case and more than 20 others were consolidated in the U.S. District Court for the Southern District of Florida. Scruggs remains the lead attorney for the consumer track.

Judge Moreno had some limited good news for plaintiffs in that suit, also called Humana Managed Care Litigation. On February 20 he refused to dismiss several key claims in the lawsuit, which charges that six managed care companies "employed hidden financial incentives for physicians to deny treatment and cut costs," according to the February 22 edition of "Daily Health Policy Report" on kaisernetwork.org.

He ruled, however, that under the 1974 Employee Retirement Income Security Act (ERISA), plaintiffs could not proceed with claims against the health plans for "allegedly applying a more restrictive interpretation" of "medical necessity" when they make treatment decisions than they have disclosed.

More information on the RICO case is posted on the Web site of the California Medical Association at www.cmanet.org and on a Web site sponsored by Archie Lamb at www.hmocrisis.com.

[In re: Humana Inc. Managed Care Litigation U.S. No. 01-10247, 11th Cir.] ▪

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