Consumers versus managed care: The new class actions

Health Affairs

Volumn 20, Issue 4, 2001, Pages 8-27

  Havighurst, Clark C ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; CONSUMER ADVOCACY; FORGERY; HEALTH CARE QUALITY; HEALTH MAINTENANCE ORGANIZATION; LEGAL ASPECT; LEGAL LIABILITY; PENSION; STANDARD; UNITED STATES;

CONSUMER ADVOCACY; EMPLOYEE RETIREMENT INCOME SECURITY ACT; FRAUD; HEALTH MAINTENANCE ORGANIZATIONS; LIABILITY, LEGAL; QUALITY OF HEALTH CARE; UNITED STATES;

EID: 0037621551     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.20.4.8     Document Type: Article

References (48)

1. Pegram v Herdrich, 120 S. Ct. 2143 (2000). The leading consumer actions still pending have been consolidated into a single proceeding, which also consolidates (on a separate "track") a number of similar class actions brought on behalf of providers. Humana Inc. Managed Care Litigation, S.D. Fla., MDL No. 1334. At this writing, the district judge was expected to rule in the near future on the defendants' motions to dismiss the cases on the "subscriber track."
2. Lawyers for the plaintiffs have expressed the hope that their initiative will compensate for what they see as political gridlock preventing a proper legislative response to the public-opinion backlash against HMOs. See A. Bryant, "Who's Afraid of Dickie Scruggs," Newsweek, 6 December 1999, 45-48.
3. See text accompanying Notes 6-8.
4. A failure to allege specific adverse health effects was fatal to the class's claims in Maio v Aetna Inc., 221 F.3d 472, 493 (3d Cir. 2000). ("Simply put, appellants cannot demonstrate that Aetna's policies 'gave [appellants] less' of a 'health care product' than what Aetna promised to deliver in terms of the level and quality of health care coverage under its HMO plan unless they allege and prove that those systemic practices actually negatively affected the health care that Aetna provided to its HMO members through its participating providers.") This ruling, even if correct (see text accompanying Notes 28-31), does not necessarily invalidate all consumer class actions against HMOs - for reasons explained later.
5. Dismissals include Maio v Aetna Inc.; Ehlmann v Kaiser Foundation Health Plan of Texas, 198 F.3d 552 (5th Cir. 2000); and Weiss v CIGNA Healthcare Inc., 972 F. Supp. 748 (S.D. N.Y. 1997). Favorable rulings include Shea v Esensten, 107 F.3d 625 (8th Cir.), cert, denied, 522 U.S. 914 (1997); and Drolet v Healthsource Inc., 968 F. Supp. 757 (D.N.H. 1997). Although the Supreme Court ruled against the plaintiff in Pegram, it left the door open to challenges to HMOs based on other legal theories. See text at Note 15.
6. 120 S. Ct. at 2156. See also 120 S. Ct. at 2157 ("the Federal Judiciary would be acting contrary to the congressional policy of allowing HMO organizations if it were to entertain an ERISA fiduciary claim portending wholesale attacks on existing HMOs solely because of their structure").
7. 221 F.3d at 499. See also Note 10.
8. Weiss, 972 F. Supp. at 753.
9. Pegram, 120 S. Ct. at 2150.
10. Although the plaintiffs in Maio clearly alleged misrepresentations as the basis for their claims, the district court interpreted their challenge much more broadly, saying, "Plaintiffs' expression of dissatisfaction with defendants' plans - indeed with HMOs in general - is more appropriately directed to the legislatures and regulatory bodies of the several states." Maio v Aetna Inc., 1999 WL 800315, at 2 (E.D. Pa. 1999), aff'd, 221 F.3d 472 (3d Cir. 2000). The court of appeals likewise read the plaintiffs' case, at crucial points, as untethered from the operative contracts, viewing the situation simply as one "in which the federal courts are asked to determine the social utility of one particular HMO structure as compared to another." 221 F.3d at 499.
11. 120 S. Ct. at 2156.
12. G.P. Joseph, Civil RICO: A Definitive Guide (Washington: American Bar Association, 2000), 121-122.
13. It would be unusual to find a firm guilty of consumer fraud when it had adhered, without collusion, to practices customary throughout its industry. Whether collusion could be proved is doubtful. Despite important similarities, each plan appears to have adopted its own disclosure policies and contracts.
14. 120 S. Ct. at 2154 n.8. See also Drolet, note 5 (upholding a complaint based on misrepresentations of physician independence).
15. However, defendants argue that specific federal and state regulations already prescribe extensive disclosures by HMOs and that judicial supplementation of those requirements on the basis of more general statutory policies (such as fiduciary obligations) would be disruptive and inappropriate. See Ehlmann at 555 ("where ERISA provides a section specifically dealing with a particular information scheme, courts should not supplement that scheme by reference to a far away provision in another part of the statute"). See Note 17.
16. The plaintiffs must somehow get around the argument that they have not been victimized as consumers because, in most cases, they did not select the health plan themselves but instead enrolled in a plan selected by their employer as their purchasing agent. Whatever the employees may have thought was being purchased on their behalf, their employers certainly knew most of what the plaintiffs claim they themselves were not told, and it is normal to attribute an agent's knowledge to the principal. Nevertheless, HMO advertising and plan descriptions are aimed at consumers, not just employers, perhaps providing a basis for subscribers to obtain legal relief if the plans, as fiduciaries, withheld or obscured relevant information and deliberately fostered beneficiaries' misunderstanding. See Drolet at 760 (plaintiff in ERISA class action characterized as "a member of the limited class of persons who have been vested by Congress with the right to expect that fiduciaries of employee benefit plans will refrain from making false statements and material misrepresentations").
17. In arguing that they fully satisfy their obligations to consumers by complying with explicit disclosure requirements in federal and state law (see Note 15), the defendants are essentially inviting the courts to view health care as a public utility-like industry, in which consumers need to be protected against dishonest or financially unreliable sellers but have little need (because products are highly standardized) to distinguish among sellers on the basis of variations in the nature or quality of their products. Under this view, standardized disclosures about benefit packages would be all that consumers or the law should require. It is not obvious, however, that Congress intended consumer protection to be entrusted exclusively to public regulators or that it anticipated that HMOs, like public utilities and conventional insurance com-panies, would offer only essentially fungible products, not varying their content except in legally prescribed and defined ways. Nevertheless, even though the legal theory of the consumer class actions is rooted in free-market principles, the judicial system may ultimately resolve them under regulatory ones.
18. Maio v Aetna Inc., 1999 WL 800315 (E.D. Pa. 1999), aff'd on other grounds, 221 F.3d 472 (3d Cir. 2000).
19. Ibid., 221 F.3d at 476.
20. R.A. Dudley et al., "The Impact of Financial Incentives on the Quality of Care," Milbank Quarterly 76, no. 4 (1998): 649-686.
21. As the populists they are, plaintiffs' lawyers will insist that economizing is reprehensible if it puts even one patient's health in jeopardy. Yet welfare economics teaches us that trade-offs matter, that quality is not an absolute goal, and that cost-benefit analysis is justified. See United States v Carroll lowing Co., 159 F.2d 169, 173 (2d Cir. 1947) (setting forth the famous "Learned Hand" test for negligence, which contemplates comparing the cost of the potential harm, discounted by its probability, with the cost of preventing its occurrence). Health plans, however, have generally not gone so far as to embrace cost-benefit analysis, focusing their cost containment efforts only on "cost-effectiveness" and the elimination of services and incremental costs that seem to yield no benefit at all. See C.C. Havighurst, Health Care Choices: Private Contracts as Instruments of Health Reform (Washington: AEI Press, 1995), 92-152.
22. Consumers are apparently extremely reluctant to recognize that doctors' clinical choices may reflect financial considerations. T.E. Miller and C.R. Horowitz, "Disclosing Doctors' Incentives: Will Consumers Understand and Value the Information?" Health Affairs (July/Aug 2000): 149-155.
23. See, for example, Maio, 221 F.3d at 475.
24. Arguably, the best solution to the quality dilemma would be to make health plans, or in some cases their subcontractors, liable for physician malpractice and other torts, the frequency of which their policies may greatly affect. See C.C. Havighurst, "Vicarious Liability: Relocating Responsibility for the Quality of Care," American Journal of Law and Medicine 26, no. 1 (2000): 7-29.
25. See National Health Lawyers Association, Patient Care and Professional Responsibility: Impact of the Corporate Practice of Medicine Doctrine and Related Laws and Regulations (Washington: NHLA, 1997). In Petrovich v Share Health Plan Inc., 719 N.E.2d 756 (Ill. 1999), the Illinois Supreme'Court imposed vicarious liability on an HMO but did so, seemingly, not to induce HMOs in general to take active responsibility for quality of care but as an exception to the usual rule intended to discourage HMOs from exercising any influence over the work of treating physicians.
26. See Note 31 for a ruling to this effect in a RICO case.
27. See Miller and Horowitz, "Disclosing Doctors' Incentives."
28. 221 F.3d at 488.
29. Ibid., 491.
30. See Havighurst, "Vicarious Liability," 10-11; and W.A. Zelman and R.A. Berenson, The Managed Care Blues and How to Cure Them (Washington: Georgetown University Press, 1998), 12.
31. See Havighurst, "Vicarious Liability," 10-11; and W.A. Zelman and R.A. Berenson, The Managed Care Blues and How to Cure Them (Washington: Georgetown University Press, 1998), 12.
32. An equally striking irony is that the district court, although it also dismissed the complaint, treated physicians as wholly independent decisionmakers whose unethical betrayals of patients' interests, rather than anything Aetna did, were the cause of any problems the plaintiffs might face. See Maio, 1999 WL 800315, at 2.
33. See, for example, Jones v Kodak Medical Assistance Plan, 169 F.3d 1287 (10th Cir. 1999).
34. See Note 21.
35. See Havighurst, Health Care Choices, 178-215, 227-262, and 146.
36. Ibid., chap. 9; M.A Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review 140, no. 5 (1992): 1637-1712; and C.C. Havighurst, "Prospective Self-Denial: Can Consumers Consent Today to Accept Health Care Rationing Tomorrow?" University of Pennsylvania Law Review 140, no. 5 (1992): 1755-1808.
37. Ibid., chap. 9; M.A Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review 140, no. 5 (1992): 1637-1712; and C.C. Havighurst, "Prospective Self-Denial: Can Consumers Consent Today to Accept Health Care Rationing Tomorrow?" University of Pennsylvania Law Review 140, no. 5 (1992): 1755-1808.
38. Ibid., chap. 9; M.A Hall and G.F. Anderson, "Health Insurers' Assessment of Medical Necessity," University of Pennsylvania Law Review 140, no. 5 (1992): 1637-1712; and C.C. Havighurst, "Prospective Self-Denial: Can Consumers Consent Today to Accept Health Care Rationing Tomorrow?" University of Pennsylvania Law Review 140, no. 5 (1992): 1755-1808.
39. Although class attorneys may profit more if money damages are allowed, ERISA provides that defendants must pay the reasonable attorneys' fees of successful plaintiffs in any case. 29 U.S. Code Annotated, sec. 1132(g) (2000).
40. Although ERISA suggests that damages for fiduciary breaches may not be recoverable by injured persons but only on behalf of the plan itself (for the benefit of beneficiaries), the Supreme Court has interpreted the statute in a way that may allow a direct recovery for intentional misrepresentations by a fiduciary. Varity Corp. v Howe, 516 U.S. 489 (1996). But see Mertens v Hewitt Assocs., 508 U.S. 248 (1993); and Drolet at 760 ("Drolet's right to retrospective relief [may be limited] if she cannot demonstrate she relied on defendants' alleged misrepresentations"). See also Note 4. Defendant HMOs also claim that under the so-called filed-rate doctrine applicable to public utilities, state regulation of their rates precludes collateral attack on their premiums. See, for example, Taffet v Southern Co., 967 F.2d 1483 (11th Cir. 1992) (en banc).
41. "Over Half of HMOs Lose Money for Second Consecutive Year," Medical Benefits (September 1999): 3.
42. The defendants argue that injunctive relief would be inappropriate under the doctrine of Burford v Sun Oil Co., 319 U.S. 315 (1943), under which courts abstain from granting injunctions that would disrupt a well-articulated regulatory scheme. Again (see Note 17), the defendants' reference to public utility law implies that health care is the product of a pervasively regulated industry, not a commodity bought and sold in negotiated voluntary transactions.
43. A particularly desirable outcome might be formulations of alternative contractual and other language that health plans of all kinds could use to explain for consumers' benefit their specific business methods, their intended level of generosity in defining coverage, and the style of medicine they expect their participating physicians to practice. A possible model might be so-called Medigap insurance, for which federal law differentiates ten varieties of cover-age. See 42 U.S. Code, sec. 1395ss (2000), 42 CFR, sec. 403.200 (2000). The courts, in consultation with the managed care industry, might pursue a comparable strategy for informing consumers about a wide range of options in the market for health coverage.
44. 120 S. Ct. at 2150.
45. Herdrich v Pegram, 170 F.3d 683 (7th Cir. 1999) (opinion dissenting from denial of rehearing en banc).
46. If not, one may ask why private health financing, with its high administrative costs, is retained at all. See C.C. Havighurst, "Why Preserve Private Health Care Financing?" in American Health Policy: Critical Issues/or Reform, ed. R. Helms (Washington: American Enterprise Institute, 1993), 87. Also, see Havighurst, Health Care Choices.
47. See W.L. Sage, "Regulation through Information: Disclosure Laws and American Health Care," Columbia Law Review 99, no. 7 (1999): 1701-1829; and A. Enthoven and R. Kronick, "A Consumer-Choice Health Plan for the 1990s: Universal Health Insurance in a System Designed to Promote Quality and Economy," New England Journal of Medicine 320, nos. 1 and 2 (1989): 29-37, 94-101.
48. See W.L. Sage, "Regulation through Information: Disclosure Laws and American Health Care," Columbia Law Review 99, no. 7 (1999): 1701-1829; and A. Enthoven and R. Kronick, "A Consumer-Choice Health Plan for the 1990s: Universal Health Insurance in a System Designed to Promote Quality and Economy," New England Journal of Medicine 320, nos. 1 and 2 (1989): 29-37, 94-101.