A Good Deal? Questions Surround AG's Settlement With Aetna

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Legislative Affairs Feature -  June 2000  

By  Ken Ortolon
Associate Editor

Throughout the 1990s, Texas continually was at the national forefront in the legislative fight to protect the rights of patients and physicians in dealing with managed care plans. But now the battleground is shifting from enactment of patient protections in the legislative arena to enforcement of these new laws by the executive branch.

The first significant blow in the effort to make managed care plans live by the new laws was struck in April when Texas Atty Gen John Cornyn announced the signing of an agreement with Aetna US Healthcare to settle a lawsuit alleging that Aetna failed to comply with state laws prohibiting payment of financial incentives that encourage physicians to limit medically necessary care.

The settlement could have far-reaching implications for future relationships between physicians and health plans, as well as the sanctity of the patient-physician relationship. Yet, the agreement sparked some controversy and left some physicians, trial lawyers, consumers, and even other state attorneys general wondering how much Attorney General Cornyn really had gained for Aetna patients and the doctors who treat them.

Assuring compliance  

On April 11, Attorney General Cornyn held news conferences in Dallas and Houston to announce that Aetna had agreed to sign an assurance of voluntary compliance ending a 2-year-old lawsuit that had alleged multiple violations of state law. Those alleged violations included paying incentives to physicians for withholding necessary care.

The lawsuit was one of several filed against health maintenance organizations (HMOs) in late 1998 by outgoing Atty Gen Dan Morales. The suits were left to incoming Attorney General Cornyn to prosecute.

Under the assurance of voluntary compliance, Aetna agreed to discontinue any financial incentives to withhold necessary care, create an Office of Ombudsman to help enrollees deal with coverage and access problems, waive its "all-products" clause for individual physicians and small physician groups, and ensure that only licensed medical professionals make medical necessity decisions. The agreement also provides that patients can continue seeing their doctor if a physician's contract is terminated in the middle of a plan year, and requires Aetna to give 90 days' written notice if a particular prescription drug is being dropped from the plan's formulary.

Perhaps most significantly, Aetna agreed not to attempt to circumvent state regulation by claiming an exemption under the federal Employee Retirement Income Security Act, or ERISA, which largely exempts self-funded health insurance plans from state insurance laws and regulations.

Both Attorney General Cornyn and Aetna officials hailed the settlement as a landmark agreement that could serve as a model for new standards governing health plan relationships with both enrollees and physicians.

"This settlement puts medical decisions precisely where they belong, and that is in the hands of patients and their physicians," Attorney General Cornyn said at the Dallas news conference.

In a statement released at the news conference, Arthur Leibowitz, MD, Aetna's chief medical officer, added, "Our agreement with the attorney general underscores that our members' health care needs are our first priority - an important step in strengthening the trust of our members and participating physicians."

After a preliminary explanation of the settlement by the attorney general, the Texas Medical Association shared the enthusiasm. "We are hopeful the settlement announced today with Aetna will open a new chapter in health plan-physician relations that will allow the plans and Texas physicians to work together to better serve patients," said then-TMA President Alan C. Baum, MD.

The good news  

The agreement was met with qualified approval. An in-depth analysis of the document by TMA and American Medical Association staff indicates there are many important provisions that will benefit both patients and physicians. It also showed the need for further clarification of the intent of various provisions of the agreement and how it will be implemented.

"What the agreement does that is especially good is that it requires Aetna to comply with all HMO laws in the state of Texas, including the patient protection provisions such as the independent review process," said Connie Barron, TMA's associate director for legislative affairs. The provision of the 1997 patient protection statutes that established the independent review process for appealing HMO denials of care was thrown out by a Houston federal district court judge and is now under appeal.

What's more, Ms Barron says, the agreement requires Aetna to submit a wider range of coverage and access issues to external review than the independent review statute requires. Under the settlement, Aetna patients would be allowed to appeal decisions that deny payment for experimental treatment, refuse to pay for emergency care under the so-called "prudent layperson" standard, and deny coverage for some prescription drugs.

Rich Johnson, director of TMA's Division of Medical Economics, adds that the all-products provision will be a significant leveling of the playing field in physicians' ability to effectively negotiate contracts with the large health plans. The agreement prohibits Aetna from forcing individual physicians to accept patients under all of its managed care products. Primary care groups of 10 or fewer physicians and specialty groups of 25 or fewer doctors also would be freed from the all-products clause that has been a standard feature of Aetna contracts in Texas.

"The agreement potentially provides a lot more leverage for physicians or physician groups in negotiating contracts with Aetna," Mr Johnson said. "For a number of doctors, and for groups in particular, the all-products clause can result in a fairly high percentage of their patient population essentially being captive to one carrier. That carrier can dictate terms that may not be good for your patients and certainly may not be good for the viability of your practice."

Devil in the details  

TMA sought comments on the agreement from some of the state's leading health law experts, as well as AMA. Their analyses raised many questions.

While many provisions of the agreement suggest a shift in patient and physician relationships with Aetna, there still was a tremendous amount of concern expressed over the agreement by some health policy experts, physicians, consumers, and others. Representatives of Texans for Public Justice, an Austin-based consumer watchdog group, labeled the settlement a "sweetheart deal" for Aetna because it failed to impose any fines for statutory violations and let the giant health plan off without any admission of guilt. The original lawsuit asked for fines of $10,000 per violation.

Others have said the settlement is riddled with imprecise language and loopholes that cause confusion about the actual intent of many provisions, or provide Aetna with escape hatches to avoid making any truly substantive changes in the way it does business.

More troubling to those observers are provisions that seem to download some stringent, and potentially costly, requirements on physician groups that contract with Aetna to provide care and limit the physicians' ability to negotiate on those requirements.

"The settlement imposes a number of things by agreement with the attorney general that otherwise would have to be negotiated by Aetna," said Spencer Berthelsen, MD, medical director for managed care for Kelsey-Seybold Medical Group in Houston.

As an example, Dr Berthelsen, who chairs a TMA ad hoc advisory group of physician networks, cites a provision that allows a patient whose physician has been dropped from Aetna's network in the middle of a policy year to continue seeing that physician until the policy year ends. While that is good for the continuity of that patient's care, Dr Berthelsen says other language allows Aetna to cut that doctor's fees to its "usual and customary" fee schedule, which often is considerably less than contract terms.

"Those Aetna fee schedule rates are low and they may not be acceptable to a physician or a group that has to continue with them for as long as 11 months," he said. "Not only might the rate be significantly lower than the contract payment rate, the physician would have to continue to provide services without any of the other protections or benefits of a contract."

Other problems Dr Berthelsen cites include an apparent ban on all incentive pools; a downloading of HMO stop loss, reinsurance, and other financial solvency requirements on physician networks; and a provision that allows Aetna to contract individually with physicians, rather than collectively with their independent practice association or physician group, if the network fails to pay claims in a timely fashion.

Dr Berthelsen says incentive funds are necessary to compensate physicians for providing efficient, conservative care because providing such care often requires more work but results in less compensation because costly surgery or extra days in the hospital are avoided.

If these and other provisions are interpreted very narrowly, they could have a serious impact on some physician groups, Dr Berthelsen says.

"There isn't enough framework around it to understand how these provisions actually will be interpreted," he said. "If they are interpreted very strictly and narrowly as stated in the agreement, it could have harmful effects on group practices and independent practice associations."

Austin attorney David Hilgers, JD, who represents several physician groups, says one of those effects could be a severe financial impact on physician groups that do risk contracting. Among the settlement's provisions is a requirement that Aetna download certain functions on any physician group that agrees to take on functions Aetna normally would carry out if it was contracting with a non-risk-bearing group. This includes a requirement that an actuary certify that any capitation rates those groups agree to with other physician groups are adequate.

"The cost of providing that actuarial certification is going to be significant," Mr Hilgers said. "It's going to be so significant that it reduces the margins even further and makes it very unlikely that much downstream risk contracting is going to go on."

Clearing the mud  

While those concerns and others seem to be well founded, lawyers from the Attorney General's Office have assured TMA that the intent of some provisions of the settlement have been misconstrued. In lengthy meetings with TMA staff, the attorney general's lawyers have said that physicians attempting to contract with Aetna are not required to accept some of the more onerous-sounding provisions.

"The agreement appears to have downstream 'mandates' for networks accepting risk, but in discussions with the attorney general and Aetna officials, these provisions are only meant to require Aetna to offer these provisions, not include them in every agreement," said TMA General Counsel Donald P. Wilcox, JD. "Few are true mandates."

In an extensive conference call with TMA attorneys and policy staff, Aetna officials also assured physicians that their interpretation of the disputed clauses closely matched that of the attorney general's staff.

Mr Wilcox says the attorney general's lawyers have indicated they intend to issue a clarification on nearly a dozen provisions about which concerns had been expressed. They also indicated that they might be willing to seek modifications to four or five other provisions that would have to be revisited with Aetna, such as the provisions that require Aetna to download utilization review and actuarial certification of capitation rates to physician groups that are doing risk contracting.

Those clarifications and modifications could be important because lawsuits are pending against two other health plans - Humana and PacifiCare - that were named as defendants in then-Attorney General Morales' original lawsuits. The Attorney General's Office likely soon will be approaching those companies in an effort to obtain similar settlement terms, and TMA and AMA officials hope to have most of the concerns clarified before those settlements can be reached.

"I look at this as a living document because the attorney general is going to try to work out agreements with these other plans," Mr Wilcox said. "That agreement is going to improve in clarity and conciseness, partly from all this input that's coming in, and I think there's going to be an opportunity for the attorney general to go back and revisit the Aetna agreement after that occurs."

If the attorney general succeeds in getting tougher agreements from Humana or PacifiCare, or at least succeeds in getting the desired clarifications in agreements with those plans, Aetna would have to abide by those terms under a sort of "most favored nation" provision in its own settlement. If another plan agrees to a settlement that sets a higher standard than the one Aetna agreed to, it is obligated to live up to the higher standard.

The national outlook  

Meanwhile, concern still exists about the impact the settlement could have nationally. Ross Rubin, vice president of legislative activities for AMA, says there is concern that Aetna will attempt to shop the plan to other states or even the US Congress as a template for dealing with managed care problems. That could be catastrophic if it's not accompanied by the strong patient protection laws that Aetna agreed to abide by as part of the settlement.

"Texas is a relatively progressive state in the regulation of this area," Mr Rubin said. "If they were to take that settlement as a template the way it's written, that would raise significant concerns for us unless it carries along certain Texas statutes that are not apparent from the face of the document."

Even if all of the clarifications are forthcoming, enforcement of the agreement still is a concern. Kim Ross, TMA vice president for public policy, says the "old" Aetna is notorious for not matching its deeds to its words.

"The old Aetna has a deplorable track record in the area of patients' rights and physician relations. Even as we speak, Aetna is attempting to get out from under the Texas managed care liability law," he said, referring to the company's appeal in the US Fifth Circuit Court of Appeals, "and fighting the Patients' Bill of Rights in Washington, DC."

Mr Johnson also points out that Aetna and other plans are responding to Texas' new law requiring prompt payment of clean claims by proposing in contracts that physicians waive their rights in that regard. Rules to implement the law do not take effect until August 1.

Still, Mr Wilcox says the Attorney General's Office is committed to holding Aetna to the letter of the agreement.

"They said they intend to fully enforce it, monitor it, and add to it if necessary," Mr Wilcox said. "They are fully committed."

Ken Ortolon can be reached at (800) 880-1300, ext 1392, or (512) 370-1392; or by email at Ken Ortolon.  


The Aetna/US Healthcare settlement - Implications for Texas and beyond

By Donald T. Lewers, MD, chair, AMA Board of Trustees  

The ongoing collaboration between the American Medical Association and the Texas Medical Association on our mutual concerns with the Texas attorney general's " Assurance of Voluntary Compliance " with Aetna is yet another example of the interdependence of state and federal health care policy, and a compelling reason for presenting a strong unified front to the powerful, investor-driven managed care organizations that are waging political war on both the state and national arenas.

Texas Atty Gen John Cornyn and Aetna/US Healthcare have settled the first of the cases the State of Texas filed against managed care plans. The state had alleged that the major health maintenance organization (HMO) and managed care plans in Texas (including Aetna, NYLCare, PacifiCare, and Humana) had established systems and practices, through their financial incentive and other operating policies, that were not in the best interest of Texas consumers, and that Texas consumers were paying premiums for coverage of services they were not receiving.

These lawsuits were important actions and placed health plans on notice that states intended to enforce their laws. The Attorney General's Office should be commended for shining the spotlight on plan practices and behavior and for seeking strong enforcement of the law.

The 51-page settlement document, formally called an Assurance of Voluntary Compliance (AVC), lays out a series of processes and procedures that Aetna must follow in how it makes its decisions, and how it relates with patients, physicians, networks, and other health care professionals. The negotiations were conducted between the attorney general and Aetna and were basically closed to other parties interested in the outcome. Both TMA and AMA were asked some preliminary background questions, but neither organization participated in the process. We saw the actual agreement at the same time everybody else did, when it was final.

Both TMA and AMA recognize that the AVC represents more than the settlement of a Texas lawsuit; it has profound national implications, laying out a possible template and setting precedent across the country. Before the ink was even dry, language directly from the AVC was appearing across the country, being offered in legislative and regulatory contexts. Because of the timing of the settlement and the prominence of Texas and Aetna, the language and interpretations in this AVC have even begun to show up in the debates on a national Patients' Bill of Rights, now being deliberated by a congressional conference committee.

Because of this, TMA and AMA worked together to conduct a detailed analysis of the agreement. We found some improvements but generally concluded that the AVC was at best confusing. At worst it ratified or gave the impression that the State of Texas was endorsing certain practices, such as "all-products clauses" for large groups or the use of "cost" as a criterion for determining the "medical necessity" of a service. The agreement went well beyond the issues of financial incentives and deceptive practices, and in some key places got into the contracting relationships between physicians and Aetna.

One of the things we learned is that you really can't understand the total ramifications of the AVC just by reading it. After discussions with the attorney general's staff, it became clear to us that along with the 51 pages of the AVC, you also had to carry a thick purple book filled with all of the Texas laws concerning health plans to really figure out what was going on. The other thing we learned was that without the already existing Texas law, the provisions did not provide much in the way of protections and, therefore, the agreement should not be considered a model for other states.

Our broad concerns are significant:

  • While the AVC is an agreement between the attorney general and Aetna dismissing their lawsuit, the provisions impact on many other parties, including networks, groups, and physicians, and create affirmative obligations that they must generally comply with, even though they weren't parties to the suit and did not participate in the negotiations for the AVC.
  • In our view, the AVC missed a great opportunity to lay out for the world how managed care should be conducted in Texas. Instead, it makes some modest improvement to the way things are. While an improvement in some limited areas (notice before unilateral contract modifications), the AVC fails to correct other more fundamental problems (the right to unilaterally modify contract terms). What is sad here is the missed opportunity to establish a future direction that truly meets patient needs.
  • The process for getting input from the community was inadequate. Patients, physicians, and other health care professionals all could have contributed to a much better product that would have had strong backing and support. Instead, we and others believe parts of the agreement reflect a lack of understanding about how things are done in managed care and how the AVC impacts operationally.
  • In places, the agreement is so ambiguous it does not really let us know what is meant. For example, some who have read the agreement cannot tell whether capitation is allowed.

Throughout this process, TMA and AMA have worked as a team, sharing information, meeting jointly with representatives of the attorney general and Aetna, and developing a comprehensive set of comments detailing each and every concern about the AVC. We will be seeking clarifications and improvements from the attorney general at every opportunity. We will be vigilant as the next two cases are negotiated so that a better outcome is achieved.

Why this high level of joint activity? First, that's the way organized medicine is supposed to and does work: sharing skills and expertise across organizational lines to get the job done. But also because this agreement is important to Texas. Not only are there still two more lawsuits to settle (PacifiCare and Humana), but also we need to be sure that the agreement is as clear and enforceable to Aetna as possible. From the AMA's perspective, this agreement is important because of the national implications. How will it influence other attorneys general? How will it influence state legislatures and regulators across the country? And, of course, how will it influence Congress?

It is sometimes difficult for the practicing physician struggling daily with an indifferent or antagonistic managed care organization to realize that only through the combined voices of the profession can organized medicine effectively advocate for the restoration, and preservation, of the patient-physician relationship. Now, more than ever, medicine's voice can be heard only when we stand together - at the statehouse, at the courthouse, and in the halls of the US Congress. 

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