Aetna Settles Texas Suit, To Reform Care Policies

Nation’s largest health insurer agrees to patient and provider-friendly changes

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CEO SUMMARY: Texas demonstrates that, where providers have political clout, some of the more onerous aspects of managed care can be changed. The Texas Attorney General sued Aetna and five other HMOs in 1998 about the way physicians were given incentives to stay within budget numbers for the cost of care. Aetna decided to settle out of court. It has agreed to some surprising changes.

TEXAS CONTINUES TO BE the nation’s leader in using the powers of government to support the cause of physicians, healthcare providers, and patients against managed care companies.

On April 11, it was announced that Aetna Inc. and the Texas Attorney General had signed an agreement to settle the existing lawsuit against the company. Aetna agreed to revise and reform a number of business practices that affect both providers and patients.

Will Stop Fining Doctors

Aetna agreed, among other things, to stop fining doctors whose patient care levels exceed allowable limits and, conversely, rewarding those whose care levels fall below HMO spending guidelines. Another key feature was a change from capitation to fee-for-service for physicians providing care to less than 100 Aetna HMO patients.

Texas Attorney General John Cornyn pursued the action brought by predecessor Dan Morales in 1998 against Aetna and five other HMOs. Aetna has a large footprint in Texas: 960,000 HMO members, with 2.4 million in all its healthcare lines.

Another big issue in the settlement is that, instead of being required to provide care for all of Aetna’s health plan products, physicians can choose which plans for which they will provide services. “Elimination of the all-products clause is a big deal,” observed John Rex, an analyst at Bear Stearns. “It’s the biggest issue that providers had. Frankly, Aetna probably needed to head that way anyway.”

For laboratory executives and pathologists watching the evolution of the managed healthcare marketplace, this settlement agreement is a significant event. It shows that the large HMOs want to avoid going to court to defend themselves against charges of rationing or withholding medical care.

In other words, the mounting legal challenges to how managed care companies manage their business affairs is having a cumulative impact. During the past 18 months, a growing number of lawsuits, including class action lawsuits, have been filed against a number of the managed care giants.

In the case of Aetna, during 1999, a civil class action RICO (fraud, racketeering) lawsuit, Maio vs Aetna, Inc. was filed in federal court by consumer-plaintiffs who alleged they had been lured by false promises of high-quality care while at the same time Aetna pressured doctors to cut costs and provide minimal care. The Maio action was dismissed in October 1999. The judge ruled the plaintiffs’ pleading raised insufficient issues and they did not have standing to sue.

Legal Liability Of HMOs

The potential legal exposure that HMOs face should not be underestimated. As consumers and physicians experienced the arbitrary ways in which medical care was authorized and provided during the last ten years, an increasing number have turned to legal and legislative remedies.

The Texas legislature and executive branch have proved friendly to doctors and healthcare providers. During 1999, the state passed a bill allowing physicians to bargain collectively.

Contrast this willingness in Texas to side with physicians to that of California, where physicians seem to be political eunuchs when it comes to getting the state legislature to pass doctor-friendly bills to rein in the worst abuses of the state’s managed care insurers.

Two-Fold Significance

THE DARK REPORT believes the significance of the Aetna settlement in Texas is two-fold. First, it shows how a state government that is responsive to the needs of healthcare providers can help balance the power relationship that exists between payers and providers, including laboratories.

Second, the threat of direct lawsuits now creates a new area of operational concern for HMOs. To avoid lawsuits, these companies will move decisively to make it appear they do not make, or influence, clinical decisions which involve providing or withholding medical care.

Both developments should be favorable to all healthcare providers, including clinical laboratories and pathology group practices.

Aetna Agrees to Reform Some Practices In Texas

Here are the important elements of the settlement between Aetna and the Texas Attorney General, announced on April 11.


  • Each physician can choose to provide for any or all of Aetna/USH’s product lines.
  • 90-day notice of significant changes in policies regarding physician participation in Aetna/USH networks.
  • Physicians with less than 100 HMO patients will now be paid on a fee-for- service basis, not capitation.


  • Expanded external review, including appeals of coverage for experimental/ investigational, emergency, prescription drugs, and standing referrals to specialists.
  • Will create the Office of the Ombudsman for Texas HMO members. Acts as advocate and gives assistance on appeals or complaints.
  • Medical necessity decisions made by Texas MDs will be based on state-of- the-art, publicly-disclosed standards.
  • Physicians to apply same standard of care to all patients, regardless of benefit plan or type of coverage.
  • Conduct studies and programs to detect and prevent underutilization of health care services, especially for women, minorities and the chronically ill.


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