In a legal settlement that doctors said would remove an insurance company from the examining room, WellPoint Inc. agreed Monday to give physicians more say in the types of treatments for which the nation’s largest health insurer would pay.
As part of the agreement, WellPoint would adopt a patient-friendly definition of “medical necessity” that mirrors the American and California medical associations’, and would allow cheaper treatment only when it was at least as effective as what a doctor recommended, physicians said.
“This is a tremendous victory for physicians and patients,” said Michael Sexton, president of the California Medical Assn.
If approved by a federal judge, the deal calls for WellPoint to spend about $198 million to settle two class-action lawsuits by more than 700,000 physicians who charged the company with systematically underpaying them and putting its financial interests ahead of patient care.
WellPoint also would make notable changes in the way it reimburses physicians and considers their treatment recommendations at a minimum cost over several years of $250 million, according to the agreement. It includes a ban on WellPoint’s alleged use of computer programs to systemically deny and underpay purportedly legitimate patient claims.
WellPoint operates mainly under the Blue Cross banner and has 28.5 million members, including 7 million in California.
WellPoint was formed when Indianapolis-based Anthem Inc. purchased Thousand Oaks-based WellPoint Health Systems for about $19 billion last year. The sale combined two big companies selling health coverage in several states.
As part of the class-action case, WellPoint would pay physicians $135 million in damages, donate $5 million to a foundation devoted to improving medical practices and the court may approve attorney’s fees of up to $58 million.
WellPoint did not acknowledge any wrongdoing. The company said the agreement would help it improve claims payment systems, which could reduce administrative costs for the insurer and for physicians, and allow doctors to spend more time on patient care.
“We see this agreement as a very important step in further collaborating with physicians,” said WellPoint Chief Executive Larry C. Glasscock. “We look forward to forging a closer partnership with the physician community in order to truly transform healthcare for the better.”
The settlement would be paid out of cash on hand and would not increase premiums paid by WellPoint members, the company said. Last year, WellPoint posted a net profit of $960.1 million on revenue of $20.8 billion.
The landmark litigation began as a series of suits filed by the California Medical Assn. and its sister groups in 1999 and 2000 against 10 of the biggest managed-care companies. The doctors alleged that the HMOs’ heavy-handed business practices amounted to extortion and fraud-violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO).
The suits were eventually consolidated in U.S. District Court in Miami, where a showdown of mammoth proportions was shaping up between the nation’s physicians and every major health plan.
Aetna Inc. was the first to break ranks when it reached a settlement with doctors in 2003, followed by Health Net Inc., Prudential Financial Inc. and Cigna Corp. The WellPoint deal would bring the total value of the settlements with insurers to about $650 million, including damages and possible attorney’s fees.
Because of WellPoint’s influence in the marketplace, the number of patients it covers and the level of animosity between the health plan and physicians, some viewed the latest accord as the most significant.
The settlement also would end one of the physicians’ biggest grievances against WellPoint: its alleged bait-and-switch tactics.
“Insurers promised patients one thing in order to sell a policy and then were doing the opposite when it came time to deliver healthcare,” Sexton said.
The agreement requires WellPoint to pay for all vaccines approved by the federal government and physician boards. In addition, the company must update its claims processing software each year to recognize new and reclassified codes for treatments. It also bars the insurer from using software programs that systematically downgrade treatments doctors perform, or to routinely deny payments for multiple procedures performed on the same day.
When the California suit was filed, the use of the RICO statute -- customarily a tool of federal prosecutors fighting criminal syndicates -- was considered creative. Ultimately, it bolstered the doctors’ case when they won approval to go forward as a nationwide class, and it allowed them to seek treble damages. Both tactics gave the physicians substantial clout in settlement discussions.
The health plans hoped to avoid a trial -- or at least the size of the one looming in Miami. The health insurers asked the U.S. Supreme Court to intervene, but the high court declined this year to get involved in the case.
Legal observers saw that as a turning point because unless the insurers worked out a deal, jurors would decide whether HMOs had abused their relationship with physicians to the detriment of patients.
Minnesota-based UnitedHealth Group and Orange County-based PacifiCare Health Systems are among a handful of insurers that have not settled with the physicians and could face trial. Last week, UnitedHealth announced plans to buy PacifiCare in an $8.1-billion deal.
The WellPoint accord must be approved by U.S. District Judge Federico Moreno in Miami.
If approved, the settlement would help doctors get what they have been unable to achieve individually in negotiations with the health plan, and, they say, it goes beyond the HMO reforms adopted in California and in other states.
Archie Lamb, an Alabama-based lawyer representing the physicians, said WellPoint patients would notice the changes.
“Your doctor will have a greater role in your healthcare versus somebody in another state looking at the bottom line,” he said.
Even with what is widely viewed as one of the most patient-friendly set of HMO mandates in the country, California physicians complain that enforcement can be difficult.
“Now we have the federal courts to enforce this,” said Jack Lewin, chief executive of the California Medical Assn. If they don’t comply, “the health plans will be in contempt of court.”
WellPoint’s shares rose 46 cents Monday to $71.21.
(BEGIN TEXT OF INFOBOX)
WellPoint agreed to:
* Change the way it reimburses physicians and considers treatment recommendations.
* Spend at least $250 million over time on systems to implement those changes.
* Pay doctors $135 million in damages.
* Donate $5 million to a nonprofit foundation.
* Pay up to $58 million in legal fees.
Largest medical plans
(In millions of members)
*Based on UnitedHealth’s proposed acquisition of PacifiCare.
Sources: Company reports, Times research