The Added Edge

Chris Fraizer, CPC, CPC-H, CPC-P
A multi-district lawsuit involving settlements with six major managed health care organizations is winding down in favor of the 19 state medical societies filing the complaint in a class action suit that represented an estimated 900,000 physicians. The California Medical Association (CMA) estimates that physicians will receive more than $344 million in cash payments from health plans and court ordered reforms valued at more than $1 billion. The companies also have binding commitments for a minimum of four years to provide greater levels of transparency and fairness in their future payment practices with physicians.
Class Action Suit
The RICO (Racketeer Influenced and Corrupt Organizations Act) litigation against for-profit health care plans represented the largest health care class action suit filed in the United States. It went to the heart of physician care with allegations that the managed care contracts breached their ability to provide medically necessary services to patients. As a result, the health maintenance organizations found in violation of their obligations under federal law must pay millions of dollars in reimbursement that had been denied due to flawed practices, and a claims editing software package that “defrauded physicians appropriate reimbursement for their services,” according to Attorney Deborah J. Winegard, general counsel of the Medical Association of Georgia, and the compliance dispute facilitator of the Aetna/CIGNA Settlements. The RICO statute, which was originally enacted to provide a mechanism to devastate drug cartels, was used against the managed care industry based upon allegations that the defendants conspired to commit several fraudulent acts, according to a statement Winegard made following the Aetna/Cigna settlements. Specifically, she said, the complaint alleged “the insurance industry conspired to develop and use the computer software program known as Claim Check to automatically downcode, bundle and otherwise defraud physicians out of proper payments.” Aetna was the first of the managed care organizations to settle, followed by CIGNA, Health Net, Prudential, WellPoint, and Humana. U.S. District Judge Federico A. Moreno dismissed claims against UnitedHealthcare Group and Coventry Healthcare Inc., the final defendants in the lawsuit.
In a summary judgment, Moreno stated that while the court does not condone the health plans’ actions, the California Medical Association and other plaintiffs had not presented sufficient evidence that UnitedHealthcare Group and Coventry conspired with the other health plan defendants to unfairly downcode and bundle physicians’ claims.
Physician Foundations
Unclaimed settlement money and other funds derived from the class action suit are used toward projects directed by two nonprofit organizations, the Physicians’ Foundation for Health Systems Excellence (PFHSE) and the Physicians’ Foundation for Health Systems Innovations (PFHSI). Their projects so far include:

  • Approximately $5.6 million in grants through the 2006 Excellence in Practice grant program
  • The 15 grantees will be working on various projects to improve quality of care, patient safety, and physician education through grants ranging from $100,000 up to $500,000 for up to three years (none of the grants are related directly to coding, although two grants will facilitate the adoption of electronic health care records)
  • $16 million in grants to nonprofit organizations dedicated to improving quality health care
  • A $2.6 million program to encourage physician use of health information technology to improve patient safety

At Issue
According to extensive coverage on the Texas Medical Association (TMA) Web site, the suit had its start in 1999 when a physician sued Humana, CIGNA, and several other health maintenance organizations (HMOs) in response to payer policies that allegedly restricted the care the physician could provide patients. Within a year, a score of other suits making similar allegations were filed on behalf of patients and physicians. The lawsuit, which eventually included county and state medical associations and individual physician plaintiffs, was consolidated under a single U.S. District Court, the Southern District of Florida, Miami Division.
The issues and subsequent settlements focused on similar disputes against the managed care organizations. The allegations included:

  • Misrepresenting and/or failing to disclose the use of edits to unilaterally bundle, downcode and/or reject claims for medically necessary covered services
  • Failing to pay for medically necessary services in accordance with member plan documents
  • Failing and/or refusing to recognize CPT® modifiers
  • Concealing and/or misrepresenting the use of improper guidelines and criteria to deny and/or reduce payment for medically necessary covered services
  • Misrepresenting and/or refusing to disclose applicable fee schedules
  • Failing to pay claims for medically necessary services within the required statutory and/or contractual time periods
  • Misrepresenting and/or refusing to disclose the use of inappropriate or unsound criteria to determine payments due to physicians, physician groups, and physician organizations compensated under capitation systems
  • Failing to pay actuarially sound capitation rates
  • Failing to assign members in a timely fashion to physicians, physician groups, and physician organizations compensated under capitation agreements

Settlement Agreements
Settlement agreements varied among the health care organizations but, for the most part, they cover modifications of software systems, fairer payment rules, consistent disclosure of payment rules, no contract changes without written notice, and faster dispute settlements. The settlements define medical necessity as follows: Patients will be entitled to receive medically necessary care as determined by a physician exercising clinically prudent judgment in accordance with generally accepted standards of medical practice, and cheaper alternatives are permissible only when they are “at least as likely to produce equivalent therapeutic or diagnostic results.”
Winegard said the resolution gives belated notice to managed care groups. “We need to be partners in health care,” she said. “The lawsuit opened up longstanding issues that require continued communication between payers and our physicians.”
Sources: California Medical Association, at, Physicians Foundations, at, TMAs (Texas Medical Association) Legal Action Against Managed Care Organizations, at (the site includes step-by-step guides for physicians to resolve billing disputes with any of the managed care organizations involved in the settlements), United States District Court, for the Southern District of Florida, Notice of Proposed Settlements of Class Actions with Humana Inc. and Humana Health Plan, Inc., of Settlement Hearing to Consider the Proposed Settlement and of Your Rights Considering the Proposed Settlement, at

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