Aetna Settles Class-Action Lawsuit for $470 Million

Cathy Tokarski

May 23, 2003

May 23, 2003 — Health insurer giant Aetna and 20 medical societies representing more than 700,000 physicians reached a settlement on a national class-action lawsuit on May 22 that charged the insurer with systematically reducing payments to physicians and overriding their treatment decisions.

Under the settlement agreement, which requires approval by Florida's federal southern district court, Aetna will pay $100 million to physicians and make several business practice improvements valued at an estimated $300 million. Aetna will also pay $20 million to establish a new health foundation and up to $50 million in legal fees. The publicly traded company (AET) will take an after-tax charge of $75 million in connection with the settlement expenses in the second quarter of 2003.

The settlement, unveiled at a New York press conference, "represents a sea change in relations between physicians and Aetna," said Aetna Chief Executive Officer and President John Rowe, MD. Resolving the company's strained relations with its physicians, which date back to managed care's ascendancy in the early 1990s, "has been a major goal of the [Aetna] board and a personal goal," said Dr. Rowe. He was president of Mount Sinai NYU Health before joining Aetna in late 2000.

The $100 million that Aetna will pay to physicians will translate into approximately $150 per physician covered under the class-action lawsuit. But lawyers and medical groups involved in the settlement negotiations emphasized that the monetary rewards were less important than a fundamental change in the relationship between the insurer and physicians.

"We were never in this for the money," said Tim Norbeck, executive director of the Connecticut State Medical Society, one of the 20 state and local medical groups backing the agreement. Instead, the goal was "changing the system to make it more fair for doctors and patients," he told Medscape.

Simplifying the claims payment process, making the insurers' reimbursement policies more transparent and establishing firm deadlines for paying "clean" claims are among the major business improvements Aetna has vowed to undertake. To that end, the insurer will establish a national advisory committee of physicians to provide advice to Aetna, disclose the factors that determine how much Aetna pays physicians for services, and make additional investments in automatic claims adjudication systems.

Aetna will also work with physician groups to develop a claims-editing software package that incorporates claims coding and grouping procedures developed by the American Medical Association (AMA) and widely used by doctors, and establish a new mechanism for physicians to appeal claims payment decisions they disagree with.

"Complexity in claims payment has been one of the major stumbling blocks" contributing to "mistakes, misunderstandings, and increased expense," Dr. Rowe noted. "No other part of the interaction that we have with physicians has been as contentious and combustible as claims," he said. For physicians, the changes will "reduce the costly administrative burden and time away from taking care of patients," and will allow Aetna to serve its customers more effectively, Dr. Rowe said.

Medical groups welcomed the agreement, saying it could represent a thawing in the hostile relations between cost-cutting managed care companies and physicians who say such policies undercut their ability to care for patients.

"This is not a panacea. It is not a total end to the problems in for-profit managed care," said Jack Lewin, MD, chief executive officer of the California Medical Association. However, he said, the agreement "does represent a turning point, a historic moment" in healthcare's history, and "Aetna has to get a lot of credit for having the courage to step up."

AMA President-elect Donald J. Palmisano, MD, said the settlement vindicated physicians and medical groups that struggled for years for legal redress to their grievances. "Today's announcement is proof positive that these physicians and medical associations have not worked in vain. The AMA expects this settlement will raise the bar for the entire health insurance industry on fair and open business practices."

Legal and medical group representatives said they were hopeful that other health insurers still embroiled in the class-action lawsuit with physicians will take heed of Aetna's settlement. UnitedHealth Group, Cigna, WellPoint Health Networks Inc., and Humana Inc. remain defendants in the federal court case. "We are hoping other plans will look at it and embrace it," said Archie Lamb, an attorney on behalf of the class-action plaintiffs.

Reviewed by Michael W. Smith, MD

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