Aetna Agrees

Insurer Settles Its Part of Federal Racketeering Lawsuit

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Law Feature -- July 2003  

By Walt Borges
Associate Editor

A settlement in a federal class action lawsuit between Aetna Inc. and state medical associations may bring Texas physicians some financial relief and make major changes in how the company treats doctors and their patients.

In May, Aetna settled its portion of the lawsuit that alleged racketeering in reimbursement practices on the part of several of the nation's largest for-profit health insurers. Aetna agreed to pay $100 million to 600,000 physicians nationwide to rectify past reimbursement errors, $20 million to a new joint insurer-physician foundation, and $50 million in legal fees to outside lawyers.

But the $170 million in direct payments is dwarfed by the $300 million that Aetna committed to spending to upgrade claim reimbursement and tracking systems to make it easier for doctors to understand how their bills are processed and how their discounts are applied.

Texas Medical Association President-Elect Bohn Allen, MD, and TMA General Counsel Donald P. Wilcox, JD, traveled to New York on May 22 to witness the joint settlement announcement, although TMA is not a party to the Aetna portion of the litigation.

"Texas doctors need to understand that the lawsuit wasn't primarily about money or retrieving money," Dr. Allen said. "It's about going forward to change the process that managed care uses, to make it open and transparent to physicians, and to have the force of the federal courts behind it. We're hoping this will change the process and take managed care companies out of the examining room, where they have never belonged."

B.J. Anderson, JD, a former lawyer for the American Medical Association, said the agreement "should be effective in resolving a number of managed care hurdles that have consumed needless hours of physicians' administrative personnel and their own efforts to protect the interests of patient-enrollees."

TMA is among the plaintiffs that filed suit against the health plans under the Racketeer Influenced and Corrupt Organization Act (RICO). RICO allows collection of civil damages from organizations that engage in a pattern of illegal activity.

"When Texas Medical Association entered into this litigation," Dr. Allen noted, "we said the health plans' business tactics seriously impair our ability to provide quality medical care to our patients. This agreement is intended to correct that."

Although TMA sued only CIGNA and Humana, it joined 18 other medical societies across the nation in endorsing the Aetna agreement. Other groups approving the settlement included the Denton and El Paso (Colorado) county medical societies, and the state medical associations of Alaska, California, Connecticut, Florida, Georgia, Hawaii, Louisiana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Virginia, South Carolina, Tennessee, and Washington.

TMA leaders such as Dr. Allen and Board of Trustees members Paul Handel, MD, and William W. Hinchey, MD, were involved in the negotiations with Aetna.

"TMA had to be there because the sheer reputation of TMA carried a lot of weight," Dr. Hinchey explained. "We were one of the first state medical associations to come on board the litigation. There is also no doubt that our staff has a level of expertise that no other physician or association has, especially in the area of CPT coding."

Leveraging More Settlements  

Dr. Hinchey says TMA's involvement in the Aetna negotiations was important because it is hoped the settlement will prompt similar deals with the other managed care organizations in the RICO suit.

But a spokesperson for the remaining defendants told the Reuters news service in late May that Humana Inc., UnitedHealth Group Inc., PacifiCare Health Systems Inc., Coventry Health Care Inc., WellPoint Health Networks Inc., CIGNA Corp., Health Net Inc., and Anthem Corp. are prepared to try the suits.

Other insurers and analysts criticized Aetna, saying it was trying to cozy up to doctors to gain a competitive edge in attracting physicians to their networks and to score a public relations victory.

John W. Rowe, MD, the gerontologist who became Aetna's chief executive officer and chair in 2000, says claims-payment issues had been in dispute with physicians since the early 1990s. Such disputes are "a major gall" to the Aetna board, Dr. Rowe said.

The objective of the settlement was to streamline communications with physicians, reduce the complexity of the claims-processing system, and help patients as well, Dr. Rowe says.

"The settlement will raise the bar for the entire health insurance industry," AMA President Donald Palmisano, MD, said at the settlement news conference.

U.S. District Judge Federico Moreno preliminarily approved the settlement and set an Oct. 13 hearing to hear objections from other defendants before he decides whether to grant final approval.

What Doctors Got  

Aetna provides plenty of goodies for physicians in the pending settlement. Among its key promises are that it will make its fee schedules available online by the end of 2004, provide a list of custom edits to its claims-editing software within six months, and end the automatic downcoding of evaluation and management codes that govern claims for most office visits.

Ms. Anderson says physicians must be willing to use the Internet to access many of the online resources Aetna has pledged to establish. She praised the provision requiring Aetna to reimburse doctors for the costs of computer software purchased for claims processing. 

Downcoding is a particularly important problem in the legal disputes with health insurers. Judge Moreno allowed consolidation of multiple cases against different insurers because it was a practice that all the insurers use.

Another feature of the settlement that may prove popular with physicians and their billing staff is a Web-based preadjudication tool that will allow doctors to determine what to expect in the way of reimbursement. The Web tool is to be in place by the end of this year.

Aetna pledged to change its CPT coding edits to comply with most of the guidelines contained in the CPT manual. In the past, disputes arose because Aetna's system did not recognize coding modifiers that prevented some of its claim edits from working.

Aetna also agreed to begin credentialing of physicians prior to their employment with participating groups. That should curtail situations in which new doctors awaiting credentials are not able to bill Aetna HMOs for treating enrollees.       

A New Definition  

Equally important is Aetna's agreement to adopt a definition of "medical necessity" that conforms to the one accepted by physicians. (See "What's Really Necessary?")

"It was important that physicians have a clear definition of medical necessity," Dr. Allen explained. "Under the settlement, the definition has now been clarified so that it conforms to the AMA standard."

Dr. Rowe told the New York Times that "it is going to be easier and less ambiguous to determine what meets the criteria of medically necessary."

Another major victory for physicians is Aetna's agreement to submit to external review of decisions in three areas of dispute.

"The first is for decisions on medical necessity," Dr. Allen said. "The second was an independent review of billing problems. The third was of compliance with the agreement."

Aetna also agreed that state laws providing greater protection for physicians would supersede the settlement.

In crafting the settlement, Aetna also pledged to set up a foundation to be managed by a board that includes members of state medical societies. The foundation will be funded by an initial $20 million payment from the insurer and will address medical issues such as childhood obesity and end-of-life care, financial issues such as caring for uninsured patients, and social issues such as discrimination on ethnic and racial grounds in health care.

At the settlement press conference, Dr. Rowe suggested that some physicians who receive payments under the settlement might opt to donate their payments to the foundation.

Aetna also agreed to set up a national advisory committee of physicians to advise the company on medical issues.

The wide-ranging concession Aetna provided won praise from several TMA leaders.

Dr. Hinchey said the settlement "is fair to both managed care organizations and to doctors. Hopefully, it will reduce the administrative burdens and provide a more streamlined interface between physicians and Aetna."

Dr. Allen agreed.

"This settlement represents the end of the road of some very long negotiations that have produced what appears to be a win-win for patients, their doctors, and Aetna," he said. "This agreement will help align the incentives of the insurance companies, physicians, and patients."


What's Really Necessary?

One of the biggest wins in the Aetna settlement was getting the health insurer to accept a definition of "medical necessity" and "medically necessary" that relies more on a treating physician's clinical judgment and less on the vague standards that allowed Aetna medical directors to override the treating doctor's judgment.

Aetna agreed to adopt a definition based on the one in the American Medical Association's Model Managed Care Contract. The AMA model -- which also is AMA's policy -- "relies on an objective 'prudent physician' standard for medical necessity determinations and does not consider cost in making that determination," according to explanatory notes in the model contract.

It defines medical necessity as services or products provided patients that meet generally accepted standards of practice, are clinically appropriate, and are not provided primarily for the convenience of the patient, physician, or other health care professional.

By comparison, Aetna's standard contract in Texas included a definition that covered "health services that are appropriate and consistent with the diagnosis in accordance with accepted medical standards and which are likely to result in demonstrable medical benefit, and which are the least costly of alternative supplies or levels of service which can be safely and effectively provided to the patient."

It excluded from "medically necessary" all custodial and supportive care, rest cures, and experimental services. When considering hospital inpatient care, medically necessary services were defined as only those "that cannot be safely and satisfactorily provided at home, in a physician's office as an outpatient service, or in any lesser facility."

Under the settlement, the AMA policy framework was adopted as the basis for new Aetna contracts. The insurer modified the conditions in each case. Aetna now will require that the generally accepted standards of medical practice be based on credible scientific evidence published in peer-reviewed medical literature. According to Texas Medical Association lawyers, the modification undermines the use of new treatments based on unsubstantiated theories often lumped under the term "junk science."

The Aetna settlement also requires services to be clinically appropriate, not just in terms of type, frequency, extent, site, and duration as the AMA requires, but also in being "considered effective for the patient's illness, injury or disease."

Cost considerations as a factor in medical necessity decisions snuck back into the settlement in the rewrite of the third condition for determining medical necessity. Medically necessary treatment now is defined as treatment that is "not more costly than alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results. . . ."

Negotiators discussed the issue of the least costly treatment at length, says Paul Handel, MD, a Houston urologist and member of the TMA Board of Trustees who took part in the negotiations. He says physicians and their lawyers agreed to the settlement because physicians not affiliated with the insurer could review Aetna's decisions on medical necessity. Aetna's compliance with the settlement is subject to the same external review, providing a second channel for addressing abuses that could occur.

"Texas physicians should understand that it is the judgment of the physician and the agreement between the physician and patient that will be paramount in determining what is medically necessary," Dr. Handel said.

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