U.S.

'Landmark' HMO Case Settled

By CBSNews.com staff CBSNews.com staff

April 11, 2000 / 2:05 PM EDT / CBS

In Texas Tuesday there was a landmark settlement that could be a model for reforming HMOs and other managed healthcare plans nationwide.

The Texas case involves the HMO practice of giving bonuses to doctors who hold down costs and penalizing -- even firing -- those who don't.

CBS News Correspondent Maureen Maher examines the settlement terms to see what they will and won't change, and explains the possible wider impact.

Dr. David Winter has opted out of the HMO industry, concerned some are more focused the management of money -- and less on the health care of patients.

"Some of the things that insurance companies were dictating to us were getting in the way of the quality care for patients, says Winter.

Many physicians are especially critical of programs that reward doctors who keep the cost of treatment down and penalize those who don't. Patients contend the practice leads to inadequate care.

The Texas attorney general agreed, filing a class action lawsuit and Tuesday announcing a settlement with one of the state's largest insurers, Aetna, U.S. Healthcare, Inc.

"This settlement places medical decisions precisely where they belong - and that is in the hands of the of the patient and the physicians," says John Cornyn, Texas attorney general.

The deal prohibits Aetna from fining doctors who exceed medical budgets or rewarding those who come in under.

It also includes a laundry list of improvements including:

a system where patients only need to get a referral once,
encouraging doctors to offer preventative care
offering coverage for experimental care in cases of life threatening illness.

In exchange Aetna admits no wrongdoing and will not pay any fines.

"It's a win-win for everybody," claims Arthur Leibowitz of Aetna.

But industry critics say the settlement stops short of curing what ails managed care the most -- the emphasis on money over medicine.

"It'll make it easier for patients to deal with problems they have. It'll eliminate the most egregious financial incentives that doctors face in deciding which type of care to provide, but it really is more of a baby step," thinks Larry Levit, industry analyst.

Still, it's a step that more and more HMOs may be willing to take, considering how the managed care industry has come under attack and with Congress looking at a patients' bill of rights, plus the number of class action lawsuits still pending.

"This settlement puts medical decisions precisely where they belong, and that is in the hands of patients and their physicians," Cornyn said at a news conference Tuesday.

Tom Brown, Aetna regional manager, says the agreement would not force the HMO to increase costs. "We believe we can do this without significantly adding to the cost of doing business."

Cornyn's predecessor, Dan Morales, sued Aetna and five other HMOs two years ago, accusing thm of illegally compensating doctors who limited patients' medical care and penalizing those who didn't.

"We believe this agreement sets the industry standard, not just to our state borders but to a national level," Cornyn says.

"It'll get all over the country real fast," thinks Rocky Wilcox, chief counsel of the Texas Medical Association.

"A lot of what is embodied in the agreement is not new business practices," Arthur Leibowitz, Aetna's chief medical officer, notes. "This is partially the attorney general's desire to solicit other plans to fit within this business model."

While Aetna and Cornyn touted the agreement, Texans for Public Justice said the deal "appears to be a sweetheart agreement for the state's biggest HMO," according to a news release.

"The deal sends a clear signal that there is no law and order for Texas and corporate wrongdoers," the statement said.

Cornyn says he would use the agreement as a model. If the other HMOs named in the lawsuit do not agree to the terms, the attorney general explains, he will try them in Travis County state district court. The HMOs are Humana Health Plans of Texas, PacifiCare of Texas, NYLCare Health Plans of the Southwest and NYLCare Health Plans of the Gulf Coast.

Aetna said it decided to settle the lawsuit and accept state regulatory oversight because it will help restore the public's trust in managed care, says David Simon, the company's chief legal counselor.

The company has 960,000 Texans in its HMO and 2.4 million members enrolled in all of its health-care programs.

"We felt like if we could achieve this landmark settlement with Aetna, then Aetna's competitors would then know this would set the standard for them as well," says Cornyn.