$90-Million Lawsuit Award Cuts to Core of Managed Care Debate : Health: Critics see the case as an example of cost obsession. A cancer patient died after her HMO refused to pay for an expensive treatment.

From Associated Press

Just after Christmas, a California jury awarded nearly $90 million to the family of a woman who died after her health maintenance organization refused to pay for a costly, experimental breast cancer treatment.

The size of the award, which stunned the health care industry, underscored more than just the age-old battle between patients and insurers. For millions of Americans, particularly those obliged to join HMOs at their employers’ request, the case cut to their worst fears about the new era of managed care.

It offered a stinging example of what managed care critics call the HMO obsession with cost, even if that means withholding medical treatment.


The attorney for Nelene Fox charged in the nearly monthlong trial that Health Net’s contract covered bone marrow transplants and that the HMO financially rewarded executives for denying coverage of costly procedures.

The company argued it only pays for the transplants under certain proven conditions, not those that are experimental or have only the slightest chance for success.

Transplanting bone marrow is a routine procedure for patients with diseases such as leukemia. But it is considered to be of unknown benefit for patients like Fox, who had advanced metastatic breast cancer, and typically it is not covered by insurers.

Mark Hieper, Fox’s attorney and brother, called the victory an “indictment on managed care.”

Indeed, if the award is upheld, “it flies in the face of managed care and would have a very negative effect” on the industry, said Thomas Hodapp, a senior health care analyst with Roberts Stephens & Co., a San Francisco investment firm.

“There’s a big concern for the precedent it sets,” he said of the case, believed to be the first of its kind tried before a jury. If the award stands, he predicted, “there will be a lot more (lawsuits) coming down the pike.”


But the case is not that simple. Many experts believe that Health Net, the second-largest HMO in California, acted properly and that it is virtually certain the award will be reduced, perhaps to a few million dollars.

Some even argue that limits on insurance coverage help prevent widespread use of potentially harmful treatments before they are proved effective. There are plenty of examples of patients who suffered from experimental therapies later found to be worthless or even damaging.

A few decades ago, for example, doctors tried freezing the stomachs of ulcer patients.

“It was not only useless, it was harmful,” said Dr. Alan Hillman, director of the Center for Health Policy at the University of Pennsylvania. “It’s too bad that the American public is pushing the profession to use everything before it is fully tested.”

But for the Fox family, anything that offered even a shred of hope was worth pursuing, and at any price.

“If there’s an outside chance of a cure, you want to do it,” Fox’s husband, James, said after the award.

With help from friends, 40-year-old Nelene Fox raised $212,000 so she could pay for the treatment. She died eight months later.


Some experts say Health Net erred in basing its defense on the experimental nature of the bone marrow transplant. Instead, they say, the HMO probably should have argued that given the advanced stage of her cancer, the treatment was simply inappropriate.

This puts HMOs in the middle of an uncomfortable debate over defining the limits of acceptable--i.e. reimbursable--treatments.

“In the real world, there are a lot of independent variables for making coverage decisions, and sometimes they’re not always based on medical outcomes,” said Dr. William Osheroff, medical director at PacifiCare Health Systems, a California-based HMO that operates in six states. “Companies will make exceptions to plans for business reasons, and I don’t think there’s anything wrong with that.”

HMO officials wouldn’t talk specifically about the non-medical issues they consider when making coverage decisions in sensitive cases. But some said that if denial might result in a lawsuit, HMOs might weigh a host of more subtle issues.

For example, women and children generally elicit more sympathy from a jury--and more media attention--than middle-aged men. So does a high-profile disease like breast cancer compared with, say, colon cancer. A procedure is also more likely to be covered if the patient participates in a clinical trial, so that the outcome would contribute to the body of medical knowledge.

Finally, there’s the notion that the squeaky wheel gets the grease.

“Nobody can write the perfect contract,” said Glenn Smith, a managing consultant at the benefits consulting firm Foster Higgins in San Francisco. “There are gray areas that are likely to be subject to interpretation and, ultimately, arbitration.”


As health plans increasingly are called on to compete on price, “they’re more and more going to be looking at the clinical requirements of care and whether that care is ‘cost-effective,’ a term the American public has a lot of trouble with,” he said. For the most part, “these decisions are going to be pocketbook issues.”

They will also affect growing numbers of people. Americans’ enrollment in HMOs has quadrupled over the past decade. By the end of the year, the figure could top 50 million and is certain to accelerate under the national push toward managed care.

In their favor, HMOs argue that they provide greater access and rarely exclude people with pre-existing conditions, unlike 72% of traditional health insurance plans, a study by KPMG Peat Marwick consulting firm shows. HMOs offer more preventive care than traditional insurance, and their premiums are lower.

For the 85% of needs that bring people into a doctor’s office, HMOs provide perfectly adequate care.

“But for that 15% of things that are tertiary in nature, there will be some constraints on the ability to use all technology willy-nilly,” Hillman of the University of Pennsylvania said.