Stock prices of large managed-care companies dropped precipitously last week as investor fears of patient lawsuits grew.
Driving those concerns were several recent federal and state court and legislative actions, as well as a Sept. 30 Wall Street Journal story that detailed plans to launch a series of class-action lawsuits against HMOs by some of the same plaintiff law firms that successfully sued the tobacco industry.
Aetna shares fell 17.5%, or $10.43, to $49.25 Sept. 30. United HealthGroup stock tumbled $11.81 to $48.68 and Cigna Corp. shares fell $9.25 to $77.75. The downward spiral continued through week's end.
The U.S. Supreme Court last week agreed to hear a case that could test whether patients can sue federally regulated HMOs for giving doctors financial bonuses in return for controlling healthcare costs.
The case involves an Illinois HMO patient whose appendix burst while awaiting an ultrasound at a facility owned by the HMO. It challenges whether large health plans regulated by the Employee Retirement Income Security Act, or ERISA, can reward physicians for withholding expensive services. ERISA has shielded health plans from such suits in the past.
The court's decision comes at the same time as the House of Representatives is about to debate legislation that would permit such lawsuits.
Also last week the Illinois Supreme Court ruled that patients in that state can sue their HMOs for malpractice by its physicians. The ruling allowed a case brought by a woman who has since died of cancer to go to trial.
The lawsuit contends the HMO is liable for negligence by physicians, even though they are independent contractors, for failing to diagnose her oral cancer in a timely manner.
Also last week, California Gov. Gray Davis signed into law wide-ranging legislation that allows patients to sue health plans (See story, p. 3).
The Wall Street Journal story revealed joint efforts by big plaintiff law firms to bring class-action suits against still-unnamed HMOs on untried legal theories that include abdicating their fiduciary responsibilities.
The prospect of millions of HMO enrollees bringing billion-dollar suits against already beleaguered HMOs have sown panic among investors concerned about the ability of those companies to withstand litigation and remain profitable.
Managed-care companies have said the suits would benefit plaintiff lawyers, while raising healthcare costs for patients.
Phil Blando, director of strategic planning for the American Association of Health Plans, said the legislative, regulatory and judicial action, coupled with the trial lawyers' intentions to sue, "have cast a cloud and dealt a one-two blow to the industry. Congress needs look no further than this week to see what could happen if it seeks to regulate managed care."