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. Last Updated: 07/27/2016

Lawsuits Denounce Health Care Plans

WASHINGTON -- Lawyers saying they represent 32 million members of managed health care plans have launched the largest legal assault yet on HMOs, filing class-action lawsuits against five of the industry's biggest players.

The suits are expected to further pound the managed health care industry on Wall Street and to add to its image problems - even though it is far from clear whether they will result in substantial damage awards or even survive initial legal tests.

Alleging violations of federal laws governing health plans and of the Racketeering Influenced and Corrupt Organizations Act, the suits accuse Pacificare, Foundation Health, CIGNA Healthcare, Prudential and Humana of violating their responsibilities to their members.

The lawsuits were filed late Monday in federal court in Hattiesburg, Mississippi, by a consortium of lawyers led by Dick Scruggs. He was one of the chief architects of lawsuits filed by states against the tobacco industry, which ledto $246 billion in settlements across the country.

The new lawsuits bring to at least nine the total number of recent class-action suits alleging violations of federal law by managed health plans.

"We're acting today to fix the broken promises the HMO industry has made to the people who entrust their very lives to these companies," Scruggs said.

The new suits target the alleged practice of giving financial incentives - such as bonuses - to physicians for restricting patients' access to expensive procedures, treatments and tests. The lawyers say they are suing several firms because the practice of using such incentives is industrywide, and they are seeking a change in the way all health plans do business.

Most of the health plans charged in the lawsuits had not yet read the court filings and declined comment on the specifics. But several echoed the comments of Pacificare's chief executive officer, Alan Hoops, who predicted the cases would result in higher costs for patients.

"This again appears to be one of many lawsuits that will ultimately drive up health care costs for consumers by forcing HMOs through unwarranted, costly and protracted litigation," Hoops said.

The multiple suits are part of an evolving strategy by several consortia of law firms whose members have won settlements running to hundreds of millions of dollars in mass tort cases and are able to finance increasingly lengthy and complicated litigation on a scale never before possible.

Their current campaign appears quite systematic and sophisticated. For instance, the lawyers are making a concerted effort to contact doctors and state medical associations for information that could be used in making the case against HMOs.

"I have spoken to representatives of virtually every medical association in the country except two," said attorney Hiram Eastland of Greenwood, Mississippi, who is working with Scruggs on the cases. "The response has been incredibly strong. The medical associations have not taken a formal role. They have been supportive in providing us documents, general information and opening up their network of contacts."

Three of these lawyers' groups met in Washington on Tuesday to discuss whether it would make sense for them to pool their legal talent and resources. One group, led by New Orleans lawyer Russ Herman - who also was involved in major tobacco litigation - is planning to file as many as eight more suits in the coming weeks against managed care companies.

So far, the strategy appears to be aimed in good measure at getting the attention of Wall Street investors, so they will bring pressure on the industry to settle rather than allowing the suits to go on for years.

"The plaintiffs' attorneys ... have said they want to use as much [Wall Street] leverage as possible against the companies," said Todd Richter, a health care services analyst for Bank of America Securities.

The affected health plans certainly do not appear ready to settle the lawsuits any time soon. "We believe these charges are baseless, and we intend to defend ourselves vigorously against them," said Fred Laberge, a spokesman for Aetna/US Healthcare, which was the target of two of the earlier suits.

Wall Street analysts said they foresee a lengthy fight. "It's going to be a very long process. There will be several years of legal action against the industry before there is any resolution," said James Lane, a health care analyst at Saloman Smith Barney.

Lane said he considers it unlikely that any of the companies sued Monday would settle quickly, because doing so would only invite more lawsuits.