Aetna Settles Payment Practices Suit

The move effectively establishes guidelines for the doctors and patients involved with HMOs.
Publish date:

Updated from 1:12 p.m. EDT



said Tuesday that it had settled a Texas lawsuit over its health care payment practices, effectively establishing guidelines for the doctors and patients involved with health maintenance organizations.

The company, the nation's largest health insurer, was not penalized or required to admit any wrongdoing. Its subsidiary,

Aetna U.S. Healthcare

, had been accused of misleading customers and illegally rewarding doctors who cut costs and punishing those who spend too much.

The Hartford, Conn.-based company said the settlement was aimed at improving Aetna's strained relationships with physicians and increasing public understanding of HMO policies and procedures.

Arthur Leibowitz, Aetna's chief medical officer, said the company was "studying the feasibility of these new initiatives in other markets outside of Texas."

In addition, the terms of the settlement may have positive implications as the industry attempts to defend itself in various class action lawsuits. "It is one more piece of positive precedent to put in the basket for managed care," said John Rex, an analyst at

Bear Stearns

. He rates Aetna's stock attractive, and his firm has done no underwriting for the company.

He cautioned, however, against overstating the strength of such a defense. "It's a helpful piece of additional ammunition but will not by any stretch cause the current litigators to dampen their efforts," he added.

Under the Texas settlement, Aetna will allow doctors in Texas to choose whether to participate in all of the company's health plans. "The elimination of the all-products clause is a big deal," Rex said. "It's the biggest issue that providers had. Frankly, Aetna probably needed to head that way anyway."

In Texas, and elsewhere, Aetna has been criticized for requiring providers to accept patients from all of its product lines even though reimbursement varies widely.

Aetna will also provide 90 days' notice of significant changes in policies or practices, and pay those doctors currently receiving payment on a fixed monthly basis and with fewer than 100 HMO members on a fee-for-service basis.

Aetna said it would expand external reviews to include appeals for experimental coverage, emergency coverage, prescription drugs and standing referrals to specialists. It will also create a consumer ombudsman, or advocate, for its members in Texas, clarify how coverage decisions are weighed in light of medical needs and ensure that doctors will provide the same standard of care to all patients.

The suit was brought against Aetna and other managed-care companies in December 1998 by the Texas attorney general, contending that false and misleading marketing materials and contracts with doctors created illegal financial incentives to limit care. Negotiations in the case have gone on for six months.

Shares of Aetna gained 3/16, or 0.3%, to close at 58 1/4 Tuesday.