Originally created 11/25/99

Group files suit against HMOs



JACKSON, Miss. --The legal team that challenged Big Tobacco in successful state cases has reunited in new lawsuits accusing five of the nation's largest HMOs of unscrupulous business practices.

The lawsuits, filed in Mississippi where the first state tobacco case originated, seek class-action status on behalf of the 32 million people who are members of Pacificare Health Systems Inc., Foundation Health Systems Inc., Cigna Healthcare, Prudential Health Care and Humana Inc.

Spokesmen for several of the companies said the lawsuits are similar to others filed during the past two months and would be fought vigorously.

Lead attorney Richard Scruggs said nearly half of the lawyers involved in cigarette cases teamed up again because "we learned lessons together in tobacco in how to resolve these big national issues when the political process gets stalemated."

"We believe we can be a big catalyst to force action to break up a logjam," he said Wednesday.

Mr. Scruggs led lawsuits filed by states against the tobacco industry that resulted in $246 billion in settlements.

Legislation to make HMOs more accountable to patients is pending in Congress, but Mr. Scruggs said more sweeping changes are needed. The five lawsuits he filed Monday in federal court in Hattiesburg, Miss., claim the companies are violating anti-racketeering laws and have offered bonuses to physicians who restrict patients' access to expensive procedures, treatments and tests.

There are now at least nine recent class-action suits alleging violations of federal law by managed health plans.

"Certainly it has investors concerned because of the notoriety of the attorneys involved. On the other hand, the case to be made with the HMOs is tougher than it was with tobacco," said Robert Mains, a health care analyst for Advest Inc.

The only major HMO not sued was United Health Care, which Mr. Scruggs said has agreed to meetings next week with the lawyers. Mr. Scruggs filed a separate suit in October against Aetna, which has about 18.3 million customers. That same week suits were also filed against HMOs in Philadelphia and Miami.

Mr. Mains said the multiple suits could be part of a legal strategy to shake the confidence of investors who will then pressure the industry to settle.

"That strategy speeds up the process of getting a one-third contingency payment in the lawyers' pockets," Mr. Mains said. "The lesson learned from the tobacco litigation is if you settle up with one group of attorneys, there's another group in line behind them. I don't think the HMOs are eager to appease these attorneys then face the same thing with 50 attorneys general."

Alan Hoops, head of Pacificare, said the lawsuits would result in higher costs for patients.

"This again appears to be one of many lawsuits that will ultimately drive up health care costs for consumers by forcing HMOs through unwarranted, costly and protracted litigation," Mr. Hoops said.

Humana spokesman Dick Brown said the company would "vigorously defend ourselves on behalf of our members and physicians."

Shares of HMO companies were mostly lower in light trading Wednesday. Humana was down 50 cents to $7.62«, Foundation was down 6¬ cents to $9.37« and Cigna was down 10 cents to $81.06¬ on the New York Stock Exchange. Pacificare was down 56¬ cents to $51.43† on the Nasdaq Stock Market.