Doctors Take HMO Fight to Federal Court

California doctors on Thursday launched their broadest legal assault yet on managed care, accusing three of the biggest HMOs of conspiring to keep doctors’ fees low, lying to doctors and patients about the quality of care members would receive, and attempting to illegally insert themselves into the doctor-patient relationship.

In a lawsuit filed in U.S. District Court in San Francisco, the 30,000-member California Medical Assn. claimed that Blue Cross of California, PacifiCare Health Systems Inc. and Foundation Health Systems Inc. violated the federal Racketeer Influenced and Corrupt Organization Act, using their power in the marketplace to fraudulently deny or delay payments to doctors, and improperly violate the relationship between doctors and patients--all for monetary gain.

The health plans said they were surprised by the suit because it was filed just as their trade organization was setting up a series of meetings with physicians and hospitals to work out payment issues.

The doctors’ suit, while certainly not the first by physicians against health maintenance organizations, signals a marked escalation in the HMO wars just in time for November’s presidential election. The CMA is among the most influential physicians groups in the country.

But experts questioned whether this suit and similar suits filed by groups of patients can survive legal challenges. A racketeering suit against Aetna U.S. Healthcare filed on behalf of consumers was dismissed as “flawed” last year in federal court in Philadelphia.

“We’ve tried everything else,” said CMA President Marie Kuffner, whose organization has been rebuffed by two state courts, the state legislature and state regulators in its efforts to force health plans to increase the amount of money they pay to doctors. “We’ve tried in several arenas and all of it has failed.”

Instead of a monetary award, the suit asks for the near-dismantling of managed care, calling on the federal courts to outlaw or regulate a host of common practices, including:

* Regulations on how and when a patient can be referred to a specialist.

* Quality-assurance programs and audits.

* Drug formularies, which prohibit or discourage doctors from prescribing certain expensive drugs.

* Monthly per-patient budgets, made up of so-called capitation payments, which do not fully cover the cost of providing care to all patients.

* Guidelines that determine whether a procedure or test is medically necessary.

At least three or four other state medical associations are considering following the CMA’s lead in the next three months, said Kim Ross, vice president for public policy at the Texas Medical Assn.

“These health plans made this bargain-with-the-devil deal,” said Dr. Marcel F. Daniels, a plastic and reconstructive surgeon in Long Beach. “They wanted to charge artificially low premiums, but they were completely underfunded. . . . The lawsuit is an attempt by physicians to take back control of the physician-patient relationship.”

Jamie Court, a consumer advocate whose Santa Monica-based group, Consumers for Quality Care, has filed several suits on patients’ behalf against managed-care firms, called the CMA’s suit “a huge step forward” for the patients-rights movement.

“It means that physicians are willing to play hardball in court arm and arm with patients, even though doctors have a traditional distaste for litigation,” Court said.

Walter Zelman, president of the California Association of Health Plans, dismissed the suit as a publicity stunt. “This is a relatively groundless legal attack which is more about public relations and politics than it is about finding genuine solutions,” Zelman said. “This is not going to solve anything. This is only going to make a lot of lawyers spend a lot of money.”

HMO representatives were similarly disdainful. “The kinds of questions they’re raising just won’t survive the light of day,” said Lisa Kalustian, spokeswoman for Foundation’s Health Net unit. “We think these charges are pretty ludicrous.”

The health plans, the suit says, conspired to extort property from doctors, and committed mail and wire fraud by lying in writing and over the telephone about whether payments were really forthcoming.

The organization’s lawyer, Alabama-based Archie Lamb, filed a similar suit earlier this year in Birmingham, which charges Aetna US Healthcare, Cigna, Humana and the former health insurance division of Prudential with similar activities. Doctors in that suit, which is pending, have asked the court to recognize them as part of a national class for purposes of mounting a class-action effort.

Lamb also is attempting to organize physicians to sue in other states.

By moving to the federal courts, the CMA hopes to avoid the political and jurisdictional troubles that plagued its earlier efforts, as well as a federal law that restricts most lawsuits against health insurers.

For these suits to survive, plaintiffs’ attorneys must persuade judges that their clients represent a true class of victims.

And it’s hard to prove that with doctors because they do not all sign the same contracts with HMOs, cut the same financial deals or even get paid the same amounts of money.

Finally, the racketeering basis for the suits is largely untested and is known as a difficult approach to take. “Obviously RICO is a hard claim to prove because you have to prove that there has been almost criminal conduct,” said David Cook, general counsel for the Georgia Medical Assn.

Times staff writers Alissa J. Rubin and Sylvia Pagan Westphal contributed to this report.