Jury Adds $77 Million to Judgment Against HMO : Courts: Woodland Hills-based Health Net denied coverage to cancer patient for bone marrow transplant.

Health Net, the state’s second-largest health maintenance organization, was ordered Tuesday by a Superior Court jury to pay $77 million in punitive damages to the family of a breast cancer patient who was denied coverage for a bone marrow transplant.

The damage award against the Woodland Hills-based company is in addition to the $12.1 million in compensatory damages the insurer was ordered to pay by the same jury last week.

Attorneys on both sides of the landmark case said the awards were the largest ever levied against an insurance company for refusing to provide health coverage benefits.

Whether the amount--or something significantly less--is ultimately paid, the jury’s verdict is expected to have broad implications for the health care industry and add to the debate over managed health care and to what degree HMOs can deny patients expensive treatments.

The woman, Nelene Fox, was found to have breast cancer in June, 1991. After other treatments failed, her doctor recommended a bone marrow transplant that, according to the woman’s family, was specifically covered by her Health Net insurance.

But Health Net denied the coverage in June, 1992, saying the $150,000 procedure was experimental. After family and friends in the Riverside County city of Temecula mounted a communitywide fund-raising effort, the woman underwent the procedure two months later--but by then, it was too late to save her, said her husband, junior high school teacher Jim Fox. His wife died in April.

The Fox family attorney, Mark Hiepler--the victim’s brother--argued in court that Health Net refused to pay for the treatment in order to save the company money, and that company executives received financial incentives and bonuses when they refused to authorize expensive procedures and treatments.

“We’re exposing the secrets of managed care--that the man who makes the decision on whether you get a procedure gets a bonus on how well the company does financially,” Hiepler said.

“This is a tribute to Nelene Fox, and this is her legacy for other women who suffer from breast cancer and who also need bone marrow transplants,” Hiepler said. “This will tell insurance companies throughout the nation that they have to fulfill their obligations to their insureds.”

Health Net attorney Steven Meadville said that the $77-million award was “outrageous, inconsistent and rendered solely on the basis of emotion” and that, if upheld, it would strip Health Net of its entire net worth, which he set at $57 million.

Health Net, formed as an independent company about 10 years ago, has about 928,000 members, all of them in California. It has been profitable only in recent years, and it still carries a heavy debt load of some $222 million.

The California Wellness Foundation, a nonprofit entity that was formed under a state legal requirement when Health Net converted to for-profit status, owns 73% of Health Net’s stock.

For all of 1992, Health Net’s revenues exceeded $1.2 billion and from that, the company posted a profit of $27.5 million. For the six months that ended June 30, Health Net earned nearly $20 million on revenue of $690 million.

Meadville said he hoped that Riverside County Superior Court Judge Richard Van Frank, who presided over the monthlong civil trial, will throw out the award as being excessive and order a new trial. If not, Meadville said, the jury’s decision will be appealed.

The judge could also modify the award, or both sides could settle on a lesser amount and avoid further litigation--a prospect that each side said was a possibility.

Jim Fox said: “The purpose of this was never to get money, or else we would have settled already. The message is that an HMO can’t have a financial incentive to withhold treatment in order to make money. We don’t want another family to go through what we’ve been through.”

Jury foreman Robley Bowen, a retired utility company supervisor, said the jury was unanimous in both its findings last week that the company caused “reckless infliction of emotional distress” that resulted in the $12.1-million award, and Tuesday’s verdict for punitive damages.

On Thursday, the jury--which prematurely began deliberating on the punishment phase of the trial--mistakenly announced that it had decided on a $75-million punitive award. The award was increased by $2 million Tuesday, Bowen said, after testimony about the company’s finances.

“We had more information about what would be equitable,” he said.

The jury settled on $77 million after discussing figures ranging from $60 million to $105 million, he said.

“They’ve got their eyes open now,” Bowen said of the insurance industry.

Juror Anthony Heath, a steelworker, added: “Corporations, regardless of their size, can’t go around stating they offer benefits, then try to get out of their commitments. If you pay for a service, they have to provide it. This was a clear-cut case.”

Hiepler said the jury’s verdict was not intended to be a broad indictment of health care “because there are insurance companies out there who will pay for bone marrow transplants. In fact, they were cheering us on, because they know they have to pay for it, and they think others should, too.”

If the verdict is upheld, the decision could complicate the Clinton Administration’s plans to reduce health care cost by limiting availability of treatments that are very expensive or not of great value.

“The notion that health plans must provide everything that people can claim would be of possible benefit would be ludicrous medical care and disastrous health care financing with or without the President’s health care plan,” USC ethicist Alexander M. Capron said.

“Health insurers have to be able to say they are collecting premiums at such a level based on the way disease is being treated at the present time. It would be an impossible system if everything being developed becomes accessible instantly.”

Similar cases involving bone marrow transplants for breast and other cancers have been filed against insurers, and many have been dismissed because the efficacy of the treatment is still a matter of dispute.

“The problem is we don’t have a supreme court of medical experimentation who can say what is acceptable and what isn’t,” Capron said.

The only case of comparable size involved a 1987 class-action suit against the Kaiser Foundation Health Plan of California for failure to pay for in-vitro fertilization treatments. That suit was dismissed when the company agreed to begin funding the treatments.

Business analysts said Tuesday that the jury award probably would not affect the proposed merger between Health Net and QualMed Inc., a Colorado-based HMO. Health Net and QualMed agreed in August to a merge in a stock exchange deal valued at about $750 million. The deal, approved by stockholders of both HMOs, is expected to be consummated early next year.

Nonetheless, the jury award could have a significant impact on Health Net’s finances, directly and indirectly.

“The major impact is likely to be in the publicity area,” said a San Francisco health-care consultant who asked not to be identified. In the past, Health Net has been accused of being a price cutter, some analysts said, and the publicity from this trial could weaken Health Net’s image.

Times medical writer Thomas H. Maugh II and staff writer Don Lee contributed to this story.