State attorneys general and private attorneys have health plans in their crosshairs, and they're hoping to replicate the successful legal campaign against the tobacco industry.
The attorneys general of Connecticut and Minnesota, Richard Blumenthal and Mike Hatch, filed class action suits against major insurers in their states in 2000, and they won't likely be the last, says a former attorney general.
"The public is demanding a response," says Hubert Humphrey III, Minnesota's former attorney general, who in 1998 settled the first class action lawsuits against the tobacco industry. "You find the legislative halls are locked up and caught up. So you find the outlet of this kind. It's in the hands of the attorneys general."
Minnesota's lawsuit, filed in December, accuses BlueCross BlueShield of Minnesota of refusing to pay for inpatient mental health treatment for children.
The Blues deny the allegations and say their treatment programs are based on community standards and scientific evidence. The case is pending in Hennepin (Minneapolis) County Court.
Connecticut's Blumenthal filed suit in September against five of the state's biggest health plans. Blumenthal says the plans injured enrollees by limiting prescription choices through formularies, failing to make timely payments to providers, failing to respond to enrollees' questions, failing to disclose information about the plans to enrollees and using arbitrary guidelines as the basis for coverage denials. The plans deny the allegations. The case is pending in U.S. District Court in Hartford.
The success of Humphrey and other attorneys general against tobacco firms in the late 1990s sent billions of dollars flowing to the states, some of which was earmarked for pursuing other class action suits, says Kevin Outterson, a partner with Baker, Donnelson, Bearman & Caldwell, a healthcare law firm in Nashville, Tenn.
But financial success alone won't spur the new round of class action suits.
Outterson says attorneys general can capitalize on the country's disdain for the insurance industry with a coordinated national campaign. In recent years, the National Association of Attorneys General has held seminars discussing these types of cases, he says.
"When you have federal suits, you end up with multidistrict litigation. It all gets transferred to a single judge," he says, adding that situation allows defendants to concentrate resources. But that can't happen when suits are filed at the state level, he says. "It makes it harder to defend. The AGs are more able to extract settlements . . . They try to beat the companies down by filing in 30 or 40 different states. I think the role of NAAG and its increased visibility and effectiveness will lead to more suits in the future. Whether it's a good idea is another question."
The multitude of class action suits filed against health plans by private attorneys was consolidated last fall into one courtroom in Florida, where one judge will decide the merits of the cases.
Humphrey says he has no doubt it's a path that needs to be taken.
The even split in the U.S. Senate leaves Congress unable to address key issues. "The frustration of the public is being responded to by others, whether at the state legislature or, especially, the attorneys general," says Humphrey, who is now teaching at the University of Minnesota.
"By and large attorneys general are not acting in partisan ways. They are sincerely looking at what is wrong and is there a legal remedy for that wrong, a state law or state common law: Do they have the capacity and authority to take it on?"
Often it's more effective to change public policy at lower levels of government than at higher levels, he says. It's easier for special interest groups to lobby one large group--Congress, for example--than to influence decisions on the local level. That's why, for example, city councils were able to pass ordinances banning the sale of cigarettes from vending machines.
"(Attorneys general) do not have to wait for legislative consensus to be reached. They don't have to deal with special interest lobbying," Humphrey says. "They have a priority of ensuring the law is enforced . . . That kind of action forces Congress and state legislatures to come to grips with these issues.
"All of this can go away if, in fact, the industry and Congress come to grips with the fundamental expectations of the public," Humphrey says. "The public is aging. Wait until the 45-year-olds get close to retirement age. The demands for more comprehensive, more economical, lower cost healthcare . . . is going to substantially increase."
This type of state-initiated action began during President Reagan's administration, Humphrey says. Reagan appointed antitrust lawyers and other cabinet heads who were not aggressive on these fronts. "The vacuum began to be filled by legal actions by attorneys general. That stimulated a lot of legislative activity on state level."
There are problems getting anything done in the legislative branches at the state and federal level, Hatch says. "There's a real problem of coming to grips with significant issues . . . There are bills that are passed that don't do what they say they will do."
There's also what Hatch calls the "revolving door" of state agency heads, such as insurance commissioners. He says they often have significant conflicts of interest and serve at the "behest of the insurance industry." Hatch, a former Minnesota insurance commissioner, says that during meetings attended by all 50 insurance commissioners, there were upwards of 2,000 insurance company lobbyists trying to get their attention.
"There's no doubt the courts are where the action is in this area," he says. "In many states there are consumer fraud laws, good faith and fair dealing laws. You have to be honest about how you administer the terms of a policy.
"With health insurance, you never get a chance to negotiate. You never even see it until after you've bought--and after you've paid a premium, generally. How many contracts in the world give (only) one side the right to determine what's right and to decide if they breach the contract?"
Despite the defeat healthcare reform advocates suffered last year when the Supreme Court unanimously ruled patients can't sue HMOs for giving doctors financial incentives to control costs, Hatch says he believes change will come from the courts.
"Margaret Thatcher said you have to fight a battle more than once to win," Hatch says. "The point being, courts are still the place for this."
But attorneys general's activity can have other motives, says Clark Havighurst, law professor at Duke University in the healthcare law division.
"State attorneys general are opportunistic," Havighurst says. "They're usually running for governor. This is their way of piling on. HMOs are unpopular with voters. They're seeming, therefore, to be on the side of the exploited patients. I find that all a little troublesome in the sense that they don't care if they're on the right side of the issue."
There are problems in healthcare, he says: Plans didn't disclose their limitations on coverage or how relationships with physicians might change. Lawsuits by attorneys general could improve the situation, he says. However, there's a danger in extracting too many settlements from the health plans.
"I would worry that the settlements with the plans tend to impose more uniformity on the industry than is appropriate," Havighurst says.
"It could, indeed, be seen as a violation of antitrust laws. The attorneys general (are) advocating . . . restraint of trade, that they'll all do business in this way and in no other. It's not consistent with running a competitive market."