Ruling Raises HMO Stock, But More Cases In Wing

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USA Today

  Wall Street gave the Supreme Court’s decision on managed care

a thumbs up Monday, but HMOs’ legal battles are far from over.

Managed care stocks rose on news that the court did not rule against

the use of bonuses and other financial incentives paid to doctors

who limit spending.

“The decision was saying you can’t punish a managed care company

for managing,” says Stuart Gerson, an attorney who represents

health care plans for Epstein Becker & Green in Washington.

The court acknowledged that managed care came in to solve the

problem of rapidly rising health care costs caused, in part, by

a lack of checks on doctors.

Financial incentives — and disincentives — play a key role in

managed care’s cost-control efforts. Doctors are often paid a

set amount per patient, per month, whether or not that patient

needs treatment. Proponents say that gives doctors an incentive

to keep patients healthy, while critics say it means patients

get short-changed.

Bonuses are sometimes offered to doctors or medical groups for

meeting annual financial goals.

The case, known as Pegram vs. Herdrich, was brought by Cindy Herdrich,

who went to her doctor complaining of abdominal pain. Her doctor

told her she had to wait eight days for an ultrasound; her appendix

burst while she waited, requiring emergency surgery.

Herdrich argued that financial incentives caused her doctor to

delay the test.

The case was the first addressing managed care’s financial incentives

to make it to the Supreme Court.

However, more than a dozen class-action cases against managed

care companies are now in lower courts, challenging financial

arrangements and health plans’ responsibility to tell their customers

about such incentives.

Most of those cases were brought under federal anti-racketeering

laws. Because the Supreme Court did not rule against the use of

financial incentives, it undermines part of the arguments in those

lower court class-action cases.

“It takes the legs out from under a lot of the class-action lawsuits,”

says Andy Bressler, an analyst with Bank of America. “But there’s

a lot of other things on the table to be worried about.”

For one thing, Monday’s ruling could result in more cases challenging

managed care in state courts.

“The managed care industry lost by winning,” says Gregg Bloche,

co-director of the Georgetown/Johns Hopkins joint program in law

and health policy.

“The door is now open, perhaps wide open, for an influx of state

cases against HMOs for withholding treatment,” Bloche says.

And in state courts, “the hurdles are lower and the damage awards

greater,” says Jamie Court of the advocacy group Consumers for

Quality Care in Santa Monica, Calif.

The court ruling also left open the question of whether health

plans need to do a better job of informing consumers about such

financial incentives.

“We are going to have decisions saying HMOs must be honest and

straightforward,” says Marc Machiz, whose Washington law firm

has brought class-action cases against managed care companies.

HMOs rise on news


HMO (ticker)  close Change

Aetna (AET)$73.566.19

UnitedHealth (UNH)$79.943.00

Humana (HUM)$5.13 0.13

Cigna (CI)$90.752.25


Healthcare Systems (PHSY) $68.06 1.31

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